CALGARY, AB – Crescent Point Energy Corp. (“Crescent Point” or the “Company”) (TSX: CPG) (NYSE: CPG) is pleased to announce that it has entered into an agreement (the “Agreement”) with Spartan Delta Corp. (“Spartan”) to acquire Spartan’s oil and liquids-rich Montney assets in Alberta for $1.7 billion in cash (the “Transaction” or “Acquisition”).
“Over the past five years, we have fundamentally rebuilt and strengthened Crescent Point,” said Craig Bryksa, President and CEO of Crescent Point. “As a result of our efforts, and after closing this transaction, our asset base will include significant inventory depth in both the Kaybob Duvernay and the Montney, while also maintaining significant low-decline assets in Saskatchewan that provide additional excess cash flow. The Montney acquisition is immediately accretive to our per share metrics, enhances our return of capital to shareholders, and is aligned with our long-term strategy to focus on high quality, scalable resource plays that meet our defined asset criteria. These assets include over 20 years of drilling locations and increase our total corporate inventory of premium locations to 15 years. The acquired lands are also situated in the volatile oil fairway with similar resource characteristics to our adjacent Kaybob Duvernay play, where we have demonstrated significant operational excellence.”
- Acquisition adds 600 Montney locations in Alberta, or over 20 years of premium drilling inventory.
- Immediately accretive to excess cash flow per share by 20 percent, resulting in a higher return of capital for shareholders.
- Maintaining commitment to return approximately 60 percent of excess cash flow to shareholders, including the base dividend.
- Pro-forma leverage ratio of 1.3 times adjusted funds flow at closing and 1.0 times at year-end 2023.
- Targeting additional non-core asset dispositions over time to further optimize portfolio.
STRATEGIC RATIONALE AND ASSET OVERVIEW
Key attributes of the acquired assets include the following:
- Approximately 38,000 boe/d (55% oil and liquids) with attractive netbacks generating significant excess cash flow;
- Total drilling inventory of 600 net Montney locations, providing over 20 years of inventory to sustain current production levels;
- Approximately 235,000 net acres of contiguous land with Montney rights in Alberta within the Gold Creek and Karr area;
- Consolidated land base that is primarily Crown with a high average working interest of 96 percent;
- Situated in the volatile oil fairway with attractive reservoir characteristics, including pay thickness and permeability;
- Key infrastructure and well licenses in place to support future development plans;
- Adjacent to Crescent Point’s Kaybob Duvernay assets, providing opportunity for operational efficiencies;
- $1.7 billion of tax pools to further enhance long-term excess cash flow generation; and
- Low Scope 1 emissions intensity of less than 0.01 tCO2e/boe.
Type wells for the acquired assets are expected to payout in approximately 10 months from the initial on-stream date, based on wells booked by the independent engineers and assuming current commodity prices. These wells are also economic at low commodity prices with break-evens below US$40/bbl WTI. Returns and economics from these wells rank in the top quartile within the Company’s portfolio, along with the Kaybob Duvernay asset, providing additional flexibility within its capital allocation framework. Crescent Point will seek to further enhance these returns over time, as it has done when entering other resource plays.
Upon closing, the Company’s pro-forma decline rate is expected to remain below 30 percent. Crescent Point plans to manage the acquired Montney assets in a disciplined manner, maintaining a conservative production profile and targeting a low decline rate to maximize long-term excess cash flow generation and return of capital for shareholders.
Pro-forma this Acquisition, the Company’s total inventory of premium locations will increase to 15 years, based on the long-term development plans for its assets.
The Transaction is anticipated to close during second quarter 2023, subject to regulatory approvals and customary closing conditions.
|All financial figures are approximate and in Canadian dollars unless otherwise noted. This press release contains forward-looking information and references to specified financial measures including: excess cash flow, excess cash flow per share, adjusted funds flow, adjusted funds flow per share, leverage ratio, discretionary excess cash flow, total return of capital, recycle ratio, base dividend and net debt. Refer to the Specified Financial Measures section in this press release for further information. Significant related assumptions and risk factors, and reconciliations are described under the Specified Financial Measures and Forward-Looking Statements sections of this press release.|
ACCRETION AND RETURN OF CAPITAL TO SHAREHOLDERS
The Acquisition is expected to be immediately accretive on all per share metrics. In the 12-month period following the closing of the Acquisition, adjusted funds flow and excess cash flow per share are expected to increase by approximately 20 percent.
Based on this expected accretion, this Acquisition is also immediately accretive to the Company’s total return of capital offering. The Company’s long-term return of capital profile has also been enhanced through this Acquisition with a significant addition of new premium drilling locations.
In addition to its base dividend, Crescent Point will continue to return 50 percent of its discretionary excess cash flow to its shareholders, or approximately 60 percent of its excess cash flow.
Crescent Point’s goal is to increase its base dividend over time, as part of its framework that targets dividend sustainability at lower commodity prices. The Company expects to revisit its base dividend as it continues to strengthen its balance sheet. Share repurchases remain Crescent Point’s current preferred method for additional return of capital, after its base dividend.
This Transaction is also accretive to Crescent Point’s Proved plus Probable (“2P”) net asset value per share by approximately seven percent, based on year-end 2022 independent engineering pricing.
Based on production of approximately 38,000 boe/d and assuming US$70/bbl to US$75/bbl WTI and $3.50/mcf AECO, the Transaction metrics are as follows:
- 3.2 to 3.4 times annual net operating income;
- $44,740 per flowing boe; and
- $8.23 per boe of 2P reserves of 206.7 MMboe, as assigned by the independent evaluator McDaniel & Associates Consultants Ltd. Including approximately $1.7 billion of undiscounted future development capital, the Acquisition equates to $16.47 per boe of 2P reserves, resulting in a recycle ratio of approximately 2.2 to 2.3 times.
The net present value (“NPV”) of the Proved (“1P”) and 2P reserves of the acquired assets total approximately $1.6 billion and $2.4 billion respectively, based on year-end 2022 independent engineering pricing. The reserves attributed to the acquired assets are based on 163 net booked locations, or approximately 25 percent of the total 600 internally identified net locations.
BALANCE SHEET AND FINANCIAL FLEXIBILITY
The $1.7 billion purchase price for the Acquisition will be paid in cash, which is expected to be funded through the Company’s existing credit facilities. To provide additional liquidity, Crescent Point has also implemented a new two-year revolving credit facility for $400 million. At closing, the Company’s unutilized credit capacity is expected to total approximately $850 million.
Crescent Point’s pro-forma leverage ratio is expected to be approximately 1.3 times adjusted funds flow at closing and 1.0 times at year end 2023, based on US$75/bbl WTI. Under a lower price scenario of US$65/bbl WTI, the Company expects to exit 2023 with a leverage ratio of less than 1.3 times.
In addition to the significant excess cash flow generation that the Company will utilize to pay down debt, Crescent Point will also seek to further strengthen its balance sheet through a disciplined disposition strategy. Under this strategy, the Company will pursue the potential sale of one or more of its assets. In aggregate, Crescent Point is looking to reduce its net debt by approximately $1.0 billion over the next 12 months. Crescent Point’s long-term goal is to maintain significant balance sheet strength, targeting a leverage ratio of less than 1.0 times in a low commodity price environment.
Based on current commodity contracts in place, Crescent Point has hedged over 10 percent of its pro-forma production for the remainder of 2023 with additional hedges extending into 2024. The Company will remain disciplined in its approach to layering on additional protection in the context of commodity prices.
UPDATED 2023 GUIDANCE AND FIVE-YEAR OUTLOOK
Crescent Point’s revised 2023 annual guidance, which incorporates the impact of the Acquisition following the closing date, includes annual average production of 160,000 to 166,000 boe/d and development capital expenditures of $1.15 to $1.25 billion. This budget, including the base dividend, continues to be fully funded at approximately US$50/bbl WTI for the remainder of the year.
The revised 2023 capital expenditures budget incorporates approximately $150 million of development capital expenditures associated with the newly acquired assets. Crescent Point plans to manage the Montney assets by drilling approximately 25 wells per year, which requires approximately $250 million of annual capital expenditures, inclusive of facilities and infrastructure spending.
The Company’s production forecast in its five-year plan is now expected to grow to 195,000 boe/d by 2027. This forecast is expected to generate approximately $3.6 billion to $5.2 billion of cumulative excess cash flow ($6.53 to $9.57 per share), at US$65/bbl to US$75/bbl WTI, representing an increase of approximately 20 percent in comparison to its prior outlook. Crescent Point’s Kaybob Duvernay and Montney assets are expected to represent approximately 45 percent of the Company’s pro-forma total production at closing and increasing to approximately 60 percent within its five-year plan. This plan remains disciplined with a continued focus on returns and long-term sustainability.
RBC Capital Markets is acting as financial advisor to Crescent Point on the Transaction and has provided a verbal opinion to Crescent Point’s Board of Directors to the effect that, as of the date of such opinion and based upon and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be paid by Crescent Point pursuant to the Transaction is fair from a financial point of view to Crescent Point. BMO Capital Markets and Scotiabank are acting as strategic advisors to Crescent Point.
The Bank of Nova Scotia and Royal Bank of Canada are acting as Co-lead Arrangers and Joint Bookrunners on the Company’s new revolving credit facility.
CONFERENCE CALL DETAILS
Crescent Point management will host a conference call on Tuesday, March 28, 2023 at 6:30 a.m. MT (8:30 a.m. ET) to discuss the announced Acquisition. A slide deck will accompany the conference call and can be found on Crescent Point’s website.
Participants can listen to this event online via webcast. The conference call can be accessed without operator assistance by registering online to receive an instant automated call back. Alternatively, the conference call can be accessed with operator assistance by dialing 1–888–390–0605. The webcast will be archived for replay and can be accessed on Crescent Point’s conference calls and webcasts webpage. The replay will be available approximately one hour following completion of the call.
Shareholders and investors can also find the Company’s most recent investor presentation on Crescent Point’s website.
|Total Annual Average Production (boe/d) (1)||138,000 – 142,000||160,000 – 166,000|
|Development capital expenditures ($ millions)||$1,000 – $1,100||$1,150 – $1,250|
|Capitalized administration ($ millions)||$40||$40|
|Total ($ millions) (2)||$1,040 – $1,140||$1,190 – $1,290|
|Other Information for 2023 Guidance|
|Reclamation activities ($ millions) (3)||$40||$40|
|Capital lease payments ($ millions)||$20||$20|
|Annual operating expenses ($/boe)||$14.25 – $15.25||$13.75 – $14.75|
|Royalties||13.75% – 14.25%||13.25% – 13.75%|
|1)||The revised total annual average production (boe/d) is comprised of approximately 75% Oil, Condensate & NGLs and 25% Natural Gas|
|2)||Land expenditures and net property acquisitions and dispositions are not included. Revised development capital expenditures is allocated as follows: approximately 90% drilling & development and 10% facilities & seismic|
|3)||Reflects Crescent Point’s portion of its expected total budget|
RETURN OF CAPITAL OUTLOOK
|Current quarterly base dividend per share||$0.10|
|Additional Return of Capital|
|% of discretionary excess cash flow (1) (2)||50 %|
|1)||Discretionary excess cash flow is calculated as excess cash flow less base dividends|
|2)||This % is part of a framework that targets to return up to 50% of discretionary excess cash flow to shareholders|
Specified Financial Measures
Throughout this press release, the Company uses the terms “adjusted funds flow” (equivalent to “adjusted funds flow from operations”), “adjusted funds flow per share”, “excess cash flow”, “discretionary excess cash flow”, “excess cash flow per share”, “net debt” and “net debt to adjusted funds flow” (equivalent to “net debt to adjusted funds flow from operations” and “leverage ratio”), “base dividends”, “total return of capital” and “recycle ratio”. These terms do not have any standardized meaning as prescribed by IFRS and, therefore, may not be comparable with the calculation of similar measures presented by other issuers. For information on the composition of these measures and how the Company uses these measures, refer to the Specified Financial Measures section of the Company’s MD&A for the year ended December 31, 2022, which section is incorporated herein by reference, and available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar. There are no significant differences in the calculations between historical and forward-looking specified financial measures.
The most directly comparable financial measure for adjusted funds flow from operations, excess cash flow and discretionary excess cash flow disclosed in the Company’s primary financial statements is cash flow from operating activities, which for the year ended December 31, 2022, was $2.19 billion. The most directly comparable financial measure for net debt disclosed in the Company’s financial statements is long-term debt, which for the year ended December 31, 2022, was $1.44 billion. The most directly comparable financial measure for base dividends disclosed in the Company’s primary financial statements is dividends declared, which for the year ended December 31, 2022 was $200.6 million. For the year ended December 31, 2022, adjusted funds flow from operations, excess cash flow, discretionary excess cash flow, net debt and base dividends were $2.23 billion, $1.15 billion, $1.00 billion, $1.15 billion and $152.2 million, respectively.
Excess cash flow and discretionary excess cash flow forecasted for 2023 to 2027 are forward-looking non-GAAP measures and are calculated consistently with the measures disclosed in the Company’s MD&A. Refer to the Specified Financial Measures section of the Company’s MD&A for the year ended December 31, 2022.
Excess cash flow per share is a non-GAAP ratio and calculated as excess cash flow divided by the number of shares outstanding. Excess cash flow per share presents a measure of financial performance to assess the ability of the Company to finance dividends, potential share repurchases, debt repayments and returns-based growth. This measure is based on current shares outstanding.
Adjusted funds flow per share is a supplementary financial measure and is calculated as adjusted funds flow divided by the number of shares outstanding. This measure is based on current shares outstanding.
Total return of capital is a supplementary financial measure and is comprised of base dividends, special dividends and share repurchases, adjusted for the timing of special dividend payments.
Recycle ratio is a non-GAAP ratio and is calculated as operating netback before hedging divided by FD&A costs. Recycle ratios may not be comparable year-over-year given significant changes executed over the last three years. Recycle ratio is a common metric used in the oil and gas industry and is used to measure profitability on a per boe basis.
Management believes the presentation of the specified financial measures above provide useful information to investors and shareholders as the measures provide increased transparency and the ability to better analyze performance against prior periods on a comparable basis.
Notice to US Readers
The oil and natural gas reserves contained in this press release have generally been prepared in accordance with Canadian disclosure standards, which are not comparable in all respects of United States or other foreign disclosure standards. For example, the United States Securities and Exchange Commission (the “SEC”) generally permits oil and gas issuers, in their filings with the SEC, to disclose only proved reserves (as defined in SEC rules), but permits the optional disclosure of “probable reserves” (as defined in SEC rules). Canadian securities laws require oil and gas issuers, in their filings with Canadian securities regulators, to disclose not only proved reserves (which are defined differently from the SEC rules) but also probable, as defined in NI 51-101. Accordingly, “proved reserves” and “probable reserves” disclosed in this news release may not be comparable to US standards, and in this news release, Crescent Point has disclosed reserves designated as “proved plus probable reserves”. Probable reserves are higher-risk and are generally believed to be less likely to be accurately estimated or recovered than proved reserves. In addition, under Canadian disclosure requirements and industry practice, reserves and production are reported using gross volumes, which are volumes prior to deduction of royalties and similar payments. The SEC rules require reserves and production to be presented using net volumes, after deduction of applicable royalties and similar payments. Moreover, Crescent Point has determined and disclosed estimated future net revenue from its reserves using forecast prices and costs, whereas the SEC rules require that reserves be estimated using a 12-month average price, calculated as the arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period. Consequently, Crescent Point’s reserve estimates and production volumes in this news release may not be comparable to those made by companies using United States reporting and disclosure standards. Further, the SEC rules are based on unescalated costs and forecasts. All amounts in the news release are stated in Canadian dollars unless otherwise specified.