Crescent Point Energy: Oil Breakeven Estimated At $41 To $42

| About: Crescent Point (CPG)

Summary

Crescent Point's unhedged breakeven point is estimated at $41 to $42 WTI oil.

At $55 WTI oil, it may be able to grow its exit rate production by approximately 15% to 16%.

Debt levels are quite reasonable, with net debt to EBITDA expected to fall to around 1.7x for 2018 at $55 oil.

Crescent Point's share price does generally factor in $55 oil and some production growth.

Valuation estimate of $13.50 to $16.60 is based on a 6x to 7x EV to 2018 EBITDA multiple.

Crescent Point Energy (NYSE:CPG) appears to be in good shape to grow production significantly at $55 oil in 2017. It made plans for nearly 10% exit rate production growth based on $52 oil and a 100% payout ratio. With $55 oil, it can potentially grow its exit rate production by around 15% to 16% if it invests that extra cash flow into production growth.

Please note that this article uses US dollars unless indicated, while Crescent Point typically reports in Canadian dollars. For example, the share price valuation estimate of $13.50 to $16.60 is in US dollars and corresponds to its NYSE listing, not its TSX listing.

Oil Breakeven Around $41 To $42

At $41 to $42 WTI oil, Crescent Point Energy should be able to generate $1.838 billion USD in revenues without hedges. This is based on 2016's exit rate of approximately 167,000 BOEPD.

Type

Units

$/Unit

$ Millions

Oil

47,170,050

$35.40

$1,670

NGLs

7,048,400

$10.60

$75

Natural Gas

40,398,060

$2.31

$93

Total Revenue

$1,838

That amount of revenues would be roughly equivalent to the estimated expenses of $1.832 billion at $41 to $42 WTI oil. This includes operating expenses of approximately $11 CAD ($8.47 USD) per BOE and maintenance capital of $755 million USD. The maintenance capital number is based on a 28% base decline rate and a $21,000 CAD ($16,154 USD) per flowing barrel capital cost, and doesn't include seismic or infrastructure expenditures. The exchange rate used is $1.30 CAD to $1.00 USD.

$/BOE

$ Millions

Operating Expenses

$8.47

$516

Royalties

$4.22

$257

Transportation

$1.73

$105

G&A

$1.35

$82

Interest

$1.92

$117

Maintenance CapEx

$12.39

$755

Total Expenses

$30.08

$1,832

Dividends are not included in the above calculations, and would increase Crescent Point's unhedged breakeven point to around $45 WTI if included at $0.36 CAD ($0.28 USD) per share per year. If some seismic and infrastructure capital expenditures are deemed as part of maintenance capital, the breakeven point would also increase a bit.

2017 Results At $55 Oil

In 2017, Crescent Point Energy is currently guiding for approximately 172,000 BOEPD in production while boosting its exit rate production up to 183,000 BOEPD, which is growth of just under 10% from 2016's estimated 167,000 BOEPD exit rate. At $55 WTI, Crescent Point should be able to deliver an estimated $2.569 billion in revenue.

Type

Units

$/Unit

$ Millions

Oil

48,585,150

$48.85

$2,373

NGLs

7,259,850

$13.75

$100

Natural Gas

41,610,000

$2.30

$96

Total Revenue

$2,569

This would allow Crescent Point Energy to have approximately $80 million in positive cash flow after covering its $1.45 billion CAD ($1.115 billion USD) capital expenditure budget as well as its current dividend.

$/BOE

$ Millions

Operating Expenses

$8.47

$531

Royalties

$6.13

$385

Transportation

$1.73

$109

G&A

$1.31

$82

Interest

$1.86

$117

CapEx

$17.76

$1,115

Dividends

$2.39

$150

Total Expenses

$39.65

$2,489

Crescent Point could potentially increase its exit rate growth to around 15% to 16% if it decided to match capital expenditures and dividends to operational cash flow at $55 oil.

Valuing Crescent Point Energy

If one assumes that Crescent Point Energy invests its surplus cash flow into production growth, it may end up with around 198,000 BOEPD in average production during 2018. Valuing Crescent Point based on that production level, $55 oil and a 6x to 7x EV to 2018 EBITDA multiple results in an estimated valuation of approximately $13.50 to $16.60. Crescent Point is currently trading within that valuation range, albeit at the low end of that range.

Conclusion

Crescent Point is in fairly good shape, with an oil breakeven point in the low-40s without its current dividend and around $45 with its current dividend. It should be able to grow production by around 15% to 16% at $55 oil without increasing its net debt. That would reduce its net debt to EBITDA ratio to approximately 1.7x for 2018.

Crescent Point's share price does currently fairly well reflect its value and potential for production growth at $55 oil. As it is at the lower end of my estimated valuation range, I'd consider it a potential buy if it drops a bit further without a shift in the long-term oil futures curve.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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