Crescent Point Energy Corporation (CSCTF.PK) Q3 2012 Earnings Call November 8, 2012 12:00 PM ET
Scott Saxberg - President & CEO
Greg Tisdale - CFO
Neil Smith - VP, Engineering & Business Development
Brian Kristjansen - Canaccord Genuity
Kyle Preston - National Bank
Gordon Tait - BMO Nesbitt Burns Inc.
Good morning ladies and gentlemen, my name is Tracy and I will be your conference operator today. At this time, I would like to welcome everyone to Crescent Point Energy’s Third 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 for 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 September 30, 2012 were announced this morning and are available on Crescent Point’s website at www.crescentpointenergy.com and on the SEDAR website.
During the call, management may make projection 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.
Thank you, operator. I would like to welcome everybody to our third quarter conference call for 2012. With me is Greg Tisdale, our Chief Financial Officer; Neil Smith, our Vice President of Engineering and Business Development; Trent Stangl, our Vice President, Marketing & Investor Relations. After I cover a few of the highlights for the quarter, Neil will discuss operational highlights and then Greg will speak to our financial highlights.
We are very proud to announce our Q3 results today and thank you for joining us on the call. Crescent Point has had an active third quarter and delivered strong results all around, again driven by improved fracture stimulation technology, facilities optimization and waterflood performance.
During the quarter we were very proactive in shipping our Bakken oil through our Stoughton rail terminal. We continue to increase our deliveries there and plan on expanding our capacity during the fourth quarter. We also got our Southwest Saskatchewan rail loading facilities up and running and delivered our first shipments in October.
Subsequent to the quarter on November 1st we announced the strategic acquisition of Ute Energy, a private oil and gas producer with assets in the Uinta Basin in Northeast Utah. This is an important acquisition for us and that establishes a new core area with long-term upside.
As we approach the end of the year, we feel we are in a great position to meet or exceed our targets for 2012. Some of the highlights from our third quarter include growing our average daily production to a record 99,600 boe’s per day, a 38% increase over third quarter 2011 and a 2,600 boe per day increase over second quarter 2012.
As we announced last week, we expect the acquisition of Ute Energy to close at the end of this month. The assets we will acquire include current production of approximately 7,800 boe’s a day in the Uinta Basin, and approximately 270 net sections of land in the centre of the resource play. This play is of a scale similar to our Bakken and Shaunavon resource plays and has all the characteristics that we look forward.
We will see significant potential upside in the Uinta Basin as the majority of land is in the center of the play are undeveloped. In total, we've internally identified more than a 1,000 net low risk drilling locations, of which only 253 net have been booked to reserves. We are very excited about this acquisition and we will apply the expertise we have developed in Canada to this light oil resource play.
Last week we also announced an increase to our guidance for the year. We now expect our average daily production for 2012 to be approximately 9,700 boe’s per day, which assumes a successful completion of the Ute acquisition. The majority of this growth is a result of our strong drilling performance this year as well as great results from our waterfloods and facility optimizations. We also increased our exit production guidance for the year to a 109,000 boe’s per day.
Our capital expenditure budget for 2012 was increased to CDN$1.4 billion and will stay focused on executing organic growth projects, developing our emerging plays and expand our waterflood programs. This positions us well going into 2013 and we expect to announce our capital budget for next year in early December.
We will continue with our hedging strategy and balance sheet discipline, maintaining the low debt to cash flow and look into continue to diversify our markets with rail. With a strong third quarter and solid results year-to-date, we are well positioned to meet or exceed our targets again this year and are excited about our new initiatives to push technology across all of our resource plays.
Before handing things to Neil, I would like to thank everyone at Crescent Point for their hard work in executing another great quarter. We are very proud with what we have achieved so far in 2012 and look forward to exiting the year on a high note. Neil will now cover our operational highlights. Neil?
Thanks Scott. On the operations side, we continue to execute on our plans in third quarter. Overall, we spent $259 million on drilling and development activities in third quarter, drilling 84 net oil wells with a 100% success rate.
We also spent nearly $55 million on land, seismic and facilities for total capital expenditure of $314 million. During the quarter, we continue to (inaudible) core deposit in Shaunavon plays through development drilling our waterflood programs and the application of new technologies.
In the Saskatchewan and Bakken, we’ve reentered existing wells that were originally completed with 18 and 16 stage cementer liners and increased them to 25 and 30 stage cementer liners.
Initial results have been positive and we have identified 90 additional wells that are candidates for the process. We are now completing the majority of our Bakken wells with 25 to 30 stage cementer liners and these results show that these wells are outperforming.
During third quarter, we continue to build infrastructure in the Bakken and Shaunavon areas to accommodate production growth. This has included the completion of the second of three new batteries planned for Southwest Saskatchewan in 2012.
Operations at our rail facility in Stoughton are going well and are allowing us to diversify our markets for Bakken crude oil and to increase our netbacks. By late third quarter, our oil rail loading facility in the Dollard area of Southwest Saskatchewan became operational. Current capacity is approximately 4,000 barrels a day of oil.
In 2013, we plan to increase deliveries through both the Dollard and Stoughton rail facilities. Before handing things to Greg; I would like to thank our field teams who continue to deliver excellent results. Thanks to all of you for your hard work.
Greg, will now discuss financial highlights. Greg?
Thanks, Neil. I’m pleased to report that Crescent Point generated cash flow in the quarter of $384 million or $1.13 per share. This represented the 4% increase over per share basis and a 27% increase over the $303 million generated in Q3, 2011.
Subsequent to the quarter on November 1, we announced the bought deal financing to raise gross proceeds of approximately $750 million to fund our acquisition of Ute energy.
In addition, we granted the underwriters an over-allotment option to exercise purchase an additional 2.8 million shares. We expect the financing to close on or about November 21. Our balance sheet remains strong with the projected average net debt to 12 month cash flow of approximately one-times and significant unutilized credit capacity.
Our 2012, cash flow forecast is set at $1.59 billion based on the WTI price of $94.25 a barrel. We continue to drive our payout ratio down and manage commodity price [reps] with a disciplined 3.5 year hedge book. On the hedging front, we continue to hedge commodity prices in the third quarter. On our oil production we are now at 54% and 35% hedge for 2013 and 2014 respectively with additional hedges in place for 2015 and early 2016.
As Neil mentioned, shipping crude on rail also acts with the hedge, the volatile price differentials we’ve been seeing. We planned on increasing crude deliveries to our Stoughton rail facility and our new Dollard rail facility, allowing us to sell the new markets to protect against this current place volatility and to increase our netbacks.
Given the strength of our balance sheet and hedge portfolio, we are well positioned to continue to generate further strong operating and financial results, as we exit 2012 and look for a strong start to 2013.
I’ll hand things back over to Scott.
Thanks Greg. We've had a great year so far and we are really looking forward to the New Year and continuing to grow the company. At this point, we are ready to answer questions from the members of the investment community and just like to remind people we are just in the midst of financing on the Ute Energy transaction. So the answers to questions on Ute Energy transactions maybe limited to basically what's in the press release. Thank you operator.
(Operator Instructions) Your first question comes from the line of Brian Kristjansen with Canaccord Genuity. Your line is now open.
Brian Kristjansen - Canaccord Genuity
Just had your question about your two mile Bakken wells at Flat Lake with respect to costs, expectations or EURs etcetera?
Great question. In Flat Lake, those wells have cost us just slightly over $4 million per well. We've had some pretty good results out there with reserves ranging from I think on the low end 150,000 to probably 250,000 barrels per well. So the economics are pretty significant and when you compare it kind of to North Dakota, so we are a mile north of the border, our drilling costs are less than half what we are seeing in North Dakota. So we see tremendous amount of upside in North Dakota on costs in the future based on that.
Brian Kristjansen - Canaccord Genuity
Any reports potential on this side of the border you are seeing at Flat Lake?
Yes definitely there has been a couple of operators that have drilled two, three, four Forks wells, basically to the north part of our lands and on eastern side of our lands. And so we see probably close to two townships of undeveloped Three Forks on our lands in Flat Lake.
Brian Kristjansen - Canaccord Genuity
And when do you see getting after that Scott?
We are just in the midst of compiling our 2013 budget and so obviously we are going to drill some of those wells next year in that budget based on the success we've seen.
(Operator Instructions) Your next question comes from the line of Kyle Preston with National Bank. Your line is now open.
Kyle Preston - National Bank
I am just wondering if you can give us an indication on where you see your current corporate decline rate just given the better well results and the impact from waterfloods you are seeing?
Okay, great. So we are, this year we budgeted around 34% decline. We are just again in the midst of our 2013 budget. On a conservative basis, we are probably going to keep it in that same sort of decline range but I think based on the results we are seeing and the out performance we are probably closer to that 30% range at this stage but budgeting wise we obviously try to continue to be conservative on our forecasts and as we go through the year.
There are no further questions at this time. I will turn the call back over to the presenters.
Okay. I think we have one more question.
We have Gordon Tait from Crescent [BMO Nesbitt Burns Inc.]. Your line is now open.
Gordon Tait - BMO Nesbitt Burns Inc.
Just to get a little more color on the waterflood, can you just bring us up to date on how much injectors you have in place, and what is the impacts it's having on the decline rates, on the wells, the offset wells? What's sort of an impact are you seeing on those?
Yes, so we have got 48 injectors in the Bakken field. I am assuming you are asking on the Bakken, 11 in the Shaunavon. When we look at overall field wells that aren’t in and around the water front, on the outside, we're seeing like 38% field declines, something like that and then when you do a review of all the wells within affected by waterflood injectors, it's about 94 of those wells, you are seeing about a 5% drop in decline at this moment.
So, 32% to 33% of something like that. So just on a high level basis, it's been about a 5% to 6% change to the decline based on just doing a comparative of the waterflood at this stage. It's obviously early stages in the waterflood in that majority of those 41 wells we just put off this year in to the flood. When you look at historically, our original patterns in the field regional projects, we've seen flat production for one to two to three years in some of the original offset wells and pileups that we started back four years ago.
So, as we add more injectors and unitize the heart of the field, we're going to see flatter and flatter production in those areas and on a larger base production. We're seeing the exact same or similar results in Shaunavon, which from our perspective is very exciting. Our original pilot that came on in the Shaunavon area four years ago or three years ago that (inaudible) implemented we now have four years of flat production in that pilot and newer pilots that we are seeing are seen very similar results as a first product, so pretty excited on that.
(Operator Instructions) Your next question comes from the line of (inaudible). Your line is now open.
I just wanted to ask in terms of your outing a number of significant new plays, new core areas and I wonder to what extent you have had to also add to staff and infrastructure to manage all the place or at what point do you think you have grown to the point that you have to sort of change your underlying management style in terms of being a much larger company?
Great question. This year our budget I think was to add about 23 people and which was our sort of standard based on what we were going to grow organically without acquisitions. The majority of our acquisitions this year were a consolidations in our main core area so the Bakken, Petro Bakken acquisition was in the main core area and Talisman, well stream across the board. So we really had to add a lot of staff other than on the field side that came with the assets and so in the office we might be just over 30 people for the year new employees, and so I think we are sitting around 600ish, 550 to 600 spending on contractors and the how is the days you are putting for them. So pretty stable over the year considering our production growth as a company.
Going into next year, we are obviously just looking at our budgeting and how much capital we spend and the people we need to add, so we are in the midst of those meetings, we are actually meeting today. So in the US side we have 16 people there, and we plan to take all of the field staff on the [huge] transaction and in the office that staff that will probably on our first initial pass will probably double to about 30, and 35 people and a lot of that administrative on the land side.
So from our perspective we haven't really had a big dramatic increased in staffing, it was probably about 2 years ago where we added about 75 people to get up to close to the level we are today and then they year before we virtually added no people, and then this year brought in about 30. So, I think because of our very focused nature of the assets, we haven't really have to had a significant amount of staff. And we pre-staffed to those for instance the Swan Hills. We had to staff in the engineers the line man there three years ago, even tough we didn't announced that until about a year and half ago. So there are [burden] things sort of things, so we’ve had a long gradual build of employees to capture on those new assets.
At this time, there are no further questions in queue. I will turn the call back over to the presenters.
Great, well thanks very much and we really look forward to the end of this year and 2013, and we are very well positioned company and so low debt, cash flow strong, drilling inventory and have all the tools in our tool kit to hit any kind of economic or any issues going forward. So we are very excited about 2013 ahead of us. Thank you.
This concludes today's conference call. You may now disconnect.
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