Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Start Time: 12:00

End Time: 12:31

Crescent Point Energy, Corp. (CSCTF.PK)

Q2 2012 Earnings Call

August 9, 2012 12:00 p.m ET

Executives

Scott Saxberg – President & CEO

Gregory Tisdale – CFO

Trent Stangl – VP, Marketing & IR

Analysts

Brian Kristjansen – Canaccord Genuity

Gordon Tait – BMO Capital

Jason Frew – Credit Suisse

Cristina Lopez – Macquarie

Jonathan Fleming – Cormark

Operator

Good morning ladies and gentlemen, my name is Melissa and I will be your conference operator today. At this time I would like to welcome everyone Crescent Point Energy’s Second Quarter 2012 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session from members of the investment community. (Operator Instructions)

Thank you, this conference call is being recorded today and will also be webcast on Crescent Point’s website. 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 June 30th 2012 were announced this morning and are available Crescent Point’s website at www.crescentpointenergy.com and on the SEDAR website.

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 or factors that could affect Crescent Point’s operations or financial results are included in Crescent Point’s most recent annual information form which maybe accessed through Crescent Point’s website, the SEDAR website or by contacting Crescent Point Energy.

I would now like to turn the call over to Mr. Scott Saxberg, President and CEO. Please go ahead Mr. Saxberg.

Scott Saxberg

Thank you, operator. I’d like to welcome everybody to our second quarter conference call for 2012. With me is Greg Tisdale, our Chief Financial Officer, Trent Stangl, Vice President, Marketing & Investor Relations. Greg will speak to our financial highlights for the quarter.

We’re very proud to announce our Q2 results in upper revised guidance, Crescent Point again is delivered another strong quarter. We significantly outperformed in the first half of the year relative to expectations and we’re upwardly revising our annual product guidance by more than 7%.

Spring break-up was better than expected but most importantly I think this increase highlights are strong driven results in 2011 and the first half of 2012. Our waterflood programs in the Bakken and Shaunavon as well as facility optimizations have mainly contributed to this increase in guidance. During the quarter we completed our Shaunavon consolidation acquisition and several on strategy acquisitions within our core areas that were highly accretive on all per share metrics.

In addition, we are proactive in shipping oil by rail, completing expansion to our rail facility in Stoughton which allowed us to substantially increase of oil deliveries and to diversify markets through rail. We are well positioned as we move into the second half of the year to meet or exceed our targets.

During the second quarter we added approximately 6,500 boes to our daily average over the first quarter of 2012. We grew our average daily product to record of 96,900 boes per day of 47% increase over our second quarter of 2011. This production growth really highlights the strength of our drilling inventory and shows our ability to execute growth on a per share basis. Overall we spent a $188 million on drilling and development activities in the second quarter, drilling 35 net oil wells with a 100% success rate.

We also spent nearly $48 million on land, seismic and facilities for a total expenditure of $236 million. During the quarter we completed several consolidation acquisitions including the Shaunavon acquisition which is a low defined long-life, large oil-in-place asset. These assets include production of approximately 2,500 boes a day which is 90% oil weighted from three operated legacy units and non-operated unit that we believe are significant upside through ASP and infill drilling.

The agreement is highly accretive to Crescent Point on all key metrics and further solidifies our dominant position in southwest Saskatchewan. We’re increasing our 2012 annual production guidance by more than 7% and we now expect to be more than 95,000 boes a day average for the year which takes into account or transactions year-to-date as well as the disposition of roughly 900 boes a day during the second quarter.

We also increased our guide – our exit production by 2.5% to more than a 100,000 boes a day, again this is result of our strong drilling performance in 2011 and the first half of 2012 as well as our success in our waterfloods and facility optimizations.

We’re keeping our capital program basically the same $1.25 billion and we’ll stay focused on executing our organic growth projects in our large resource in place assets, developing emerging place and expanding the waterflood programs. Because of our strong production results in Q2 we decided to delay drilling until the beginning of August which will allow us to capitalize on reduced cost into optimize the remaining budget. We believe that reduced industry activity will alleviate cost pressures in the second half of 2012 leading to improved operating cost and capital efficiencies across all areas.

We will continue with our hedging strategy and balance sheet discipline, maintaining the low debt of cash flow and looked to continue to diversify markets with rail which has opened up new markets and allowing us to manage pipeline disruptions. We’re currently more than 16,000 barrels a day shifting through our Stoughton rail facility with an additional 1,000 being delivered to third party rail sites.

We’ve planned to expand our rail facility and ramp up to 40,000 barrels per day in Q4 and in addition, we’re looking at developing rail capabilities in our other core areas. With the record Q2 production we’re well positioned to meet or exceed our targets again for this year.

Before handing things over to Greg, I’d like thank Crescent Point team for its hard work in executing another fantastic quarter. And we’re very excited about what we’ve achieved in the first half of 2012 and look forward to a strong second half. Greg will now cover some of the financial highlights.

Gregory Tisdale

Thanks, Scott. I’m pleased to report that Crescent Point generated cash flow in the quarter of $386 million or $1.19 per share. This represented the 4% increase over Q2 2011 on a per share basis. This increase in cash flow is supported by our record production generated in Q2 and as even more impressive given a $15 reduction in the realized commodity prices from the prior year.

On the finance side, we had an active quarter as we close to private place into the long-term notes and increase to syndicated bank loan by $500 million. With respect to the long-term notes we assured $268 million of US notes and C$32 million Canadian notes with terms ranging from 7 to 10 years and coupon rates ranging from 3.39% to 4.76%.

With these notes our total long-term notes outstanding at the end of second quarter is $838 million. In the quarter our bank line was also increased from $1.6 billion to $2.1 billion. At the end of the quarter approximately $1.1 billion is drawn on those facility, providing a significant financial flexibility with approximately $1 billion unutilized.

Our cash flow forecast for 2012 is $1.47 billion based on the WTI price of $94 a barrel. We continued to drive or payout ratio down and manage our price subsequently disciplined 3.5 year hedge book. We actively hedge commodity prices in the second quarter capitalizing a high commodity price throughout the four curves, we’re now 57% hedge for the balance of 2012, 51% hedge for ‘13, 32% hedge for 2014 and 14% hedge for 2015 on our oil production.

As Scott mentioned, shipping crude on rail also acts with the hedge, the volatile price differentials we’ve been seeing and expect we’ll continue through the year. We’ve plan on increasing crude deliveries through our Stoughton rail facility, aligning that sale to new markets and to protect against this current place volatility pipeline differentials.

Given the strength of our balance sheet and hedge portfolio we are well positioned and continue to generate further strong operating and financial results for the balance of 2012 and beyond.

I’ll hand things back over to Scott.

Scott Saxberg

Thanks Greg. Again we’ve had an outstanding first half of the year and we’re looking forward to the rest of 2012.

At this point we’re ready to answer any questions from members at the investment community. Operator

Question-and-Answer session

Operator

(Operator Instructions) Your first question comes from the line of Brian Kristjansen from Canaccord Genuity. Your line is now open.

Brian Kristjansen – Canaccord Genuity

Good morning guys. Scott, I had a question trying to break out the guidance increase between how much was due to the mild break-up and how much was due to the waterflood impact, can you put some numbers around those?

Scott Saxberg

I think we had success I think in all areas, when you kind of – I think when we came through Q1 and looking at what our results from 2011 and then rolling into Q1 that sort of carried on through our process. So probably 3,000 barrels a day, 2,500 barrels a day that is just baseline production that exceeded our expectations from budgeting the year before, so I’d say about half of that is just based on waterflood facilities optimizations that we did in Shaunavon and in the Bakken that carried through the year solid, about half of it is based on value.

And then break-up obviously wasn’t as bad, so our average for the year, the other portion of that average comes I think from the fact that we didn’t have as much downtime in Q2.

Brian Kristjansen – Canaccord Genuity

Okay, sort of 50-50 time, okay thanks.

Operator

Your next question comes from the line of Gordon Tait from BMO Capital. Your line is now open.

Gordon Tait – BMO Capital

Good morning. Just on you mentioned you’re going to delay some of your capital spending into the middle of Q3 and it would result in some kind of cost savings. Are you able to kind of quantify is like a 5% or 10% savings or what are you seeing out of the service commission negotiate with?

Scott Saxberg

Yeah that’s a great question Gord. We, back in May when prices started to come off in May and June and then we were well ahead of our production numbers. We made a call to first to lay our drilling to July 1 and go back to the service providers and say, hey give us some cost reductions although oils $90 or $85, price differentials have come up and that environment is changed. And so we need to see some reduction for us and then we – so we got some feedback on that and then as we got further through Q2 to the end and we are well ahead of our numbers. We decided to again push off our drilling to beginning of August to mid August and capture again that service providers to ask for some discounts because at that point we’re contemplating change in our budget.

And we had some really good positive feedback from service providers, in that we’re seeing anywhere from 10% to 15% sort of cost reductions. We’re kind of banking on really probably more like 5% to 10% and so until you see it kind of happen, so I’d say it sort of 5% to 10%.

Gordon Tait – BMO Capital

And then in terms of number of wells drilled I think at about 157 wells in the first half of the year, how many are you looking getting completed by year end?

Scott Saxberg

So with our budget allocation, so part of we also what was positive for us was to allow us to adjust our capital program and where we’re spending money in the different areas. And so we decided to go through that process and so we’re actually drilling less wells than probably original budget, mainly because some of the capital we’ve shifted to Shaunavon hills and then into North Dakota and we’re seeing good results in both those areas. And so our well count I think we’ve dropped by probably 50 to 60 wells.

Gordon Tait – BMO Capital

Billion and more expensive wells, correct?

Scott Saxberg

Yeah, so we’re probably going to, we’re going to drill in total something like 330 to 350 kind of well count depending on that final allocation, so about 180 wells left to drill by the end of the year I think.

Gordon Tait – BMO Capital

Are those net wells?

Scott Saxberg

Net wells, yeah.

Gordon Tait – BMO Capital

Okay. And then just one question on the, your Stoughton rail loading, just based on whether the current prices are differentials, what’s the cost benefit relationship data there is an increase in the cost using rail typically but what is the payoff in terms of your real life prices?

Scott Saxberg

Well partly with our rail facility out in Stoughton especially were very lucky in that rail line goes right through our field and right beside our battery. So the capital cost to expand from 16,000 barrels to 40,000 is fairly minimal, relative to that we’ve made – we’ve had a payout, we’ve really paid off our rail facility basically. And then when it comes down to pricing we’re able to ship rail to several different markets and diversify our markets.

And so we’re early days I think still in shifting rail and so we really think that the margin difference between pipeline and rail it’s $1 to $2 from a box difference and we could potentially long-term with that diversification you can make an argument that it’s really not that significant differential between the rail, so and pipe, so all right, Trent, maybe you can step in.

Trent Stangl

Yeah, I think when you look at the long-term you got within that one or two boxes, so far this year with the volatile differentials we’ve seen on the pipe we probably seeing at August 3rd of the volatility on the rail side under differentials and we’ve seen at the pipe and the date that’s here veil at that had been at worst had been equivalent to pipe and investments has been significantly better than packs than on the pipe side. And really the key there is the volatility is $1 lower and we’ve been able to lock in some differentials through the rails as well for 6 and 12 month terms.

Gordon Tait – BMO Capital

I guess there is no risk it being a portion then?

Trent Stangl

No, no.

Scott Saxberg

No. And then one of the – you also talk to factor in is cost like we saw over the last two years because of Enbridge’s disruptions and pipeline failures costs on the pipe going up. And additional season and so you don’t know where that’s going to be headed long-term with those kind of continued disruption, so we’re early days I think on the rail side but we’re seeing some pretty positive pricing and it gives us a lot of flexibility and at the of the day the main reason we put the rail facility in the first place was to give us that flexibility around and reduce our risk around pipeline disruptions.

Gordon Tait – BMO Capital

Okay, thanks.

Operator

Your next question comes from the line of Jason Frew from Credit Suisse. Your line is now open.

Jason Frew – Credit Suisse

Hey there, Scott I wonder if you could walk us through the steps toward a unit wide waterflood and the Bakken and maybe give us a roadmap as to how that progresses in time and when you might see it in more of a step change in your decline rate and your reserve booking?

Scott Saxberg

Well we’re full on unitizing the main core of the Bakken play, we’re continuing to expand the waterflood at more injectors. At the stage right now we have a numerous years of water injection convergence before we really need to unitize lands per se to be impactful. So the first step is to convert wells on our crown lands in through the units and then unitize. We’re thinking unitization ship happen sometime next year based on the place that we’re going, and so well within timeframes of converting producers to injectors on our crown lands.

On the reserve booking side we’ve seen positive reserve bookings on the older sort of patterns or near injector wells, more focused on performance but then at the same time we’re converting producing wells to injectors, so we lose reserves on those injectors and then they get added to the offset producers so you kind of wind up with the net zero in the short-term, but we’re seeing pretty strong performance across the board not only at the Bakken but also Shaunavon. And so as you get more data months go by we’ll add reserves on those wells and it’s just sort of gets built into your long-term reserve ads with minimal capital. So it’s one of those, it’s a long-term year-over-year ad, we don’t expect to go from like a 12% recovery to 20 or something overnight, it’s more of a 12 of those are 13 to 14 to 15 year-over-year for long time. And that’s just the nature of how conservative engineers book reserves at year end and third-party, we know technically we believe recovered factors are going to be in the 30s, mid 30s and I’m more convinced as we’ve drilled more wells, we’ve drilled now well over 2,000 multistage horizontal wells in Canada and through these fields, and then with more waterflood data we’re seeing that unconventional type reservoir act more like a conventional reservoir.

And so you may see recovery factors move more towards the conventional recovery factor versus the initial theory of low recovery and type reservoirs, so we’re pretty excited about that.

Jason Frew – Credit Suisse

Okay, thanks for that color.

Scott Saxberg

Yeah, thanks.

Operator

(Operator Instructions) Your next question comes from the line of Cristina Lopez from Macquarie. Your line is now open.

Cristina Lopez – Macquarie

Hi guys, just a couple quick questions. The first one is with respect to potential cash tax ability, what are you looking at for a time horizon now given continued strength in both your production volumes and with the commodity?

Gregory Tisdale

Yeah it’s Greg here. So we’ve about $7.5 billion in taxable and our tax horizon with given current commodity prices is slightly taxable in 2014 and really 2015 when will be taxable.

Scott Saxberg

And at that level it’s sort of 7% or something like yielding to in our five year plan it might be…

Gregory Tisdale

10%.

Scott Saxberg

Close to 10%.

Cristina Lopez – Macquarie

Okay. The other question I have is obviously the acquisitions were financed with the balance sheet, balance sheet still looks very strong. Is the idea to keep this just as a financing using your balance sheet or is there thoughts of issuing equity around us to further show our balance sheets?

Scott Saxberg

Well, obviously we’re in a very strong position, we’ve had a very successful first half of the year. We see lots of opportunities ahead of us not only on the M&A front but just on our drilling and drilling inventory. And so we’re going to look to raise equity when required when there is a need and keep financially strong.

Cristina Lopez – Macquarie

And then the last question I have is with respect to your decline rate, given the strength you’ve had with your waterfloods where are seeing the decline rate today and what are you projecting now as part of your five year plan for kind of 2013, 2014 for the decline rate?

Gregory Tisdale

Yeah that’s a good question. So we’ve, it’s sort of, it’s probably three different parts to it, we did about 20,000 barrels a day of acquisitions this year of which a good chunk of those are low decline transactions. In addition we’ve seen some pretty good response on the waterfloods and just baseline decline, just even on our – we’ve gone from our 16 stage packers plus to 25 stage cemented liner and our 25 stage cementer liners are outperforming any of our previous completions and have lower initial declines that we’re seeing.

And so a lot of our outperformance is been due to that single change in our completion technique and so on a corporate basis we used to in our five year plan be kind of around 34% annualized decline which is conservative, it’s probably more like 31, 32. And so obviously we’re budgeting a little bit more conservative but currently we’re now seeing that more like 32% and so I’d probably argue on our reality basis were probably sub 30 right now based on how things are looking but we kind of budget around 32.

Cristina Lopez – Macquarie

Perfect, that’s it from me, thanks guys.

Gregory Tisdale

Thanks.

Operator

Your next question comes from the line of Brian Kristjansen from Canaccord Genuity.

Brian Kristjansen – Canaccord Genuity

Thanks. Just to add a couple more questions with respect to the reallocation of capital to Swan Hills and North Dakota, now that predominantly – are you seeing, I imagine cost are still sticky in Swan Hills or the reduced programs from your smaller competitive free step up there and with the status on North Dakota is that productivity or cost reduction there or both?

Scott Saxberg

Yeah that’s a great question again. It’s interesting because so in the first half of the year some of our partners and competitors went really hard with drilling rigs and completions and it really got a bit crazy up there and when we finished Q1 we kind of set, hey we got to pull this back, we saw the capital cost escalation just the asset price cost had gone up extremely high. And we have long 10 year land like its 9 year, 10 year land so we don’t have to drill it that quickly.

And so we’ve, we went back to our partners, we did some quite a bit of work with our service providers and so we pulled back dramatically on drilled counts and drill rigs there and so we pull back I think to two rigs kind of to the end of the year. And so we’re now, we saw higher capital cost per well there in the first half of the year and now with our new completions that we’ve done just more recently in July here, we’ve saw the cost come dramatically down back to our what our original type wells were.

So we were seeing costs well over $6, almost $7 million on some of those Swan Hills wells and we’re now back down to the 5.5, 5.3 kind of per well cost. And so obviously hopefully that sustains through to the end of the year and that’s our expectation. And then in North Dakota, despite the dropping prices guys down there are still very active drilling. We are starting to see some softening in North Dakota with more availability of drilling rate and frac crew. What we did there was we’ve changed our completion technique and went to more ceramics.

And so our costs are higher on a per well basis but then our productivity has been better and so that’s sort of the interesting thing about both areas Swan Hills and North Dakota. The production and reserved results have been very, very encouraging and very strong. And so really for us we feel just a matter of driving cost down in those areas and that’s basically what we’ve been focused on for the second half the year.

Brian Kristjansen – Canaccord Genuity

All right, thanks Scott.

Scott Saxberg

Okay.

Operator

Your next question comes from the line of Jonathan Fleming from Cormark. Your line is now open.

Jonathan Fleming – Cormark

Hi Scott, just touching on that North Dakota operation a little bit more. I wonder if you could comment or give a little color on the M&A market opportunity down there, just, last year there was a whole heck of lot out of activity and is that kind of activity level still driving high prices to enter the play on.

Scott Saxberg

Yeah I think we had a three sort of part approach to North Dakota in that, and then we saw the opportunity and that there are high cost to drill, there is a $10 price differential built in that’s probably more like 15 now or it has been. And then we just saw from our knowledge base from Viewfield where we drilled up our Viewfield pool and we saw, and you’ve seen it the change in completion technique and then therefore reserve ads and reserve growth. So like in Viewfield we started out with a 75,000 barrel type well now in that same part of the field where upwards of 200,225 with more knowledge and time.

And so we see that same sort of view in North Dakota, and so those are all in our view point a cheap entry point into North Dakota because of those three factors when you’re doing acquisitions all those kind of factors are built in that we feel suppress the values in those areas. At the same time though, so what we’ve seen I think over the last six months is a lot of activity levels but a good portion of deals that have gone no bid or not, or where guys aren’t moving to sell at the levels based on current commodity prices.

So there has been a lot of activity but not as many transactions as there could have been I think. And so we’ve been involved in looking obviously at a lot of transaction certainly to North Dakota. We’re also have been active and profitably looking at other basins within the US, now with our Denver team and the bench strength that we have down there we’re able to evaluate more than just the North Dakota. And with our multiple expertise in the Bakken, Shaunavon and waterfloods completion techniques with Swan Hills with the Viking in North Dakota we bring to the table a pretty fast expertise that’s unique I think to going into the US and the fact we drilled over 2,000 wells and completed wells in probably 100 different ways.

So we are actively looking at other areas and trying to see whether we can be in the forefront of some of the new replace.

Jonathan Fleming – Cormark

Then Scott, if you were to look three years down the road into your crystal ball, would you see yourself in two or more basins in the US then or how you see that growth building itself out over the next couple of years?

Scott Saxberg

I think we’re probably we’re, we’re obviously want to stay very focused and I think we’ve been that way in Canada and so I would say we’re probably in one or two play types obviously we’re there in North Dakota, so to add another one probably isn’t that difficult. When you get beyond that at this stage and we’re talking probably long-term five to 10 years maybe we’re in the similar number of basins as we are in Canada but we obviously we’ve been very, done very well staying very focused, all of our deals we’ve done this last eight years is more than tying into our existing infrastructure and facilities and areas that we’ve got our expertise.

And so we’re taking our time and sort of building our way into place.

Jonathan Fleming – Cormark

Good stuff, thanks very much.

Scott Saxberg

Great, thanks.

Operator

There are no further questions at this time. I’ll turn the call back over to the presenters.

Scott Saxberg

Great, thank you very much everybody and we look forward to have another great half of 2012.

Operator

Thank you ladies and gentlemen for participating in Crescent Point’s second quarter 2012 conference call. If you have more questions you can call Crescent Point’s Investor Relations department at 1-877-403-1678. Thank you, and have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Crescent Point Energy's CEO Discusses Q2 Results - Earnings Call Transcript
This Transcript
All Transcripts