Crescent Point Announces 2018 Results and Reserves

CALGARY, March 7, 2019 /PRNewswire/ – Crescent Point Energy Corp. (“Crescent Point” or the “Company”) (TSX and NYSE: CPG) is pleased to announce its operating and financial results for the year ended December 31, 2018.

KEY HIGHLIGHTS

• Over $400 million of excess cash flow expected to be available in 2019 for net debt repayment and additional share repurchases based on current strip prices. This amount excludes proceeds from any additional dispositions.
• Strong capital discipline with 2018 capital expenditures $38 million under budget and annual production ahead of guidance.
• Executed over $355 million of dispositions in 2018.
• Replaced 142 percent of 2018 production through organic reserves growth.
• Increased net asset value (“NAV”) per share by approximately four percent, assuming a constant price deck of US$55.00/bbl, or approximately eight percent adjusted for dividends paid during the year.
• Commenced a normal course issuer bid (“NCIB”) on January 25, 2019, with approximately 1.3 million shares repurchased to date at an average cost of $3.89 per share, which is a significant discount to the Company’s current NAV.
• Continued board renewal process, including the recent appointment of John Dielwart as a new independent director.

“In 2018, we spent below budget, exceeded our production guidance and increased our net asset value per share,” said Craig Bryksa, President and CEO of Crescent Point. “In mid-2018, new management began transitioning the company to be more focused and efficient, realizing cost structure improvements and prioritizing capital allocation based on returns while continuing to advance our core areas. In addition to these changes and those set out in our transition plan, we also welcome and look forward to the additional insight and expertise provided through our ongoing board renewal process.”

FINANCIAL HIGHLIGHTS

• For the year ended December 31, 2018, the Company’s adjusted funds flow totaled $1.74 billion, or $3.16per share diluted. In fourth quarter, adjusted funds flow totaled $337.3 million, or $0.61 per share diluted.
• For the year ended December 31, 2018, Crescent Point’s capital expenditures on drilling and development, facilities and seismic totaled $1.737 billion, which was below its annual guidance of $1.775 billion. Capital expenditures totaled $302.3 million in fourth quarter, including $278.4 million spent on drilling and development to drill 172 (139.6 net) wells.
• As at December 31, 2018, net debt to adjusted funds flow was 2.3 times, with cash and unutilized credit capacity of approximately $1.62 billion. Based on current strip commodity prices and guidance, net debt to adjusted funds flow is forecast to be 2.0 times at year-end 2019, with over $400 million of excess cash flow available for net debt reduction and share repurchases.
• For the year ended 2018, the Company incurred a net loss of $2.62 billion, including a non-cash impairment of $3.71 billion ($2.73 billion after-tax). Post-impairment, Crescent Point’s balance sheet reflects a better approximation of the fair value of its asset base in the current environment and incorporates a higher cost of capital. The charge was not related to underlying asset performance and does not impact the Company’s adjusted funds flow or the amount of credit available under its bank credit facilities.

DIFFERENTIALS AND MARKET ACCESS

• Crescent Point’s fourth quarter oil differential widened to $23.34/bbl from $10.74/bbl in third quarter. This compared positively to the fourth quarter Edmonton Par differential of $34.88/bbl. Based on realized prices to date and the forward curve, the Company’s first quarter 2019 oil differential is expected to narrow to approximately $8.75/bbl. This is expected to improve its realized oil price by approximately 15 percent relative to fourth quarter 2018. Crescent Point remains unaffected by the Alberta Government’s production curtailments given the smaller size of its operations in the province.
• During periods of increased market access constraint in Canada, the Company expects that its oil production will continue receiving a premium due to a significant portion of its assets located either downstream of recent apportionment points or in the United States. Crescent Point is also exploring solutions to further enhance realized pricing for its Canadian oil production.
• Subsequent to fourth quarter 2018, the Company resolved a National Energy Board complaint and legal action through the negotiation and execution of a settlement agreement. The agreement includes a cash settlement payable to Crescent Point in addition to a revised pipeline tariff that is expected to increase the Company’s netback for oil production transported on the Saskatchewan Pipeline System.

OPERATIONAL HIGHLIGHTS

• Annual average production in 2018 was 178,166 boe/d, exceeding Crescent Point’s guidance of 177,000 boe/d. As previously announced, the Company sold approximately 7,000 boe/d during 2018 for proceeds of approximately $355 million.
• Crescent Point continues to advance its key focus areas. In Viewfield, the Company’s waterflood program has allowed for a base decline rate of approximately 25 percent in 2019. This decline rate is below the corporate average and helps drive free cash flow generation in the play. In Flat Lake, the Company has been testing longer laterals and drilled several two-mile horizontal wells as part of its fourth quarter program. This group of wells generated encouraging results with average 30-day initial production (“IP30”) rates of over 270 boe/d and are expected to pay out in approximately 18 months at current strip prices. Crescent Point has budgeted for an increased number of two-mile horizontal wells in 2019 based on these results and recent well cost reductions of approximately 10 percent.
• In the Uinta Basin, Crescent Point continues to generate strong production results through its two-mile horizontal well program. During 2018, the Company completed 11 two-mile horizontal wells targeting the Wasatch and Uteland Butte zones with IP30 rates averaging approximately 900 boe/d. Notwithstanding these strong results and its ability to reduce well costs by over 10 percent, the Company reduced capital allocated to this play in 2019 based on returns due to existing market access.
• As part of its waterflood program, Crescent Point converted 79 producing wells to water injection wells in 2018 for approximately $50 million. The Company plans to convert approximately 145 wells in 2019 for approximately $40 million, highlighting its focus on cost reductions while advancing decline mitigation techniques. Conversion costs to date in 2019 have been on, or below, budget.

RESERVES HIGHLIGHTS

• On a Proved Plus Probable (“2P”) basis, Crescent Point organically replaced 142 percent of its 2018 production and achieved reserves of 987.6 million boe (“MMboe”) (90 percent oil and liquids). Excluding acquisitions and dispositions (“A&D”), the Company’s 2P reserves grew by 27.2 MMboe, net of 2018 production.
• Crescent Point added 92.2 MMboe of organic 2P reserves in 2018, generating 2P F&D costs of $19.20 per boe, excluding changes in Future Development Capital (“FDC”), and an operating netback of $35.52 per boe, for a recycle ratio of 1.9 times.
• Total 2P reserves growth benefited from 132.1 MMboe of extensions and improved recovery less 40.6 MMboe of net technical revisions. These technical revisions include a reduction of vertical drilling locations in the Uinta Basin as part of the Company’s asset review and its increased focus on horizontal well development.
• Over 23 percent of the Company’s total organic 2P reserves additions in 2018, or 21.5 MMboe, were attributed to low F&D waterflood activities. Crescent Point has added over 60 MMboe of 2P waterflood reserves across its operations since 2013, with 2018 marking the sixth consecutive year independent evaluators have recognized tight rock waterflood additions.
• On a Proved (“1P”) basis, Crescent Point replaced 120 percent of its 2018 production and achieved reserves of 619.5 MMboe (90 percent oil and liquids). Excluding changes in FDC, 1P F&D costs totaled $22.61 per boe, for a recycle ratio of 1.6 times. Overall, 1P reserves accounted for 63 percent of total 2P reserves.
• On a Proved Developed Producing (“PDP”) basis, Crescent Point replaced 115 percent of 2018 production and achieved PDP reserves of 386.9 MMboe (90 percent oil and liquids). PDP F&D costs totaled $23.64per boe, excluding changes in FDC, representing a recycle ratio of 1.5 times. Overall, PDP reserves accounted for 39 percent of total 2P reserves.

NET ASSET VALUE HIGHLIGHTS

• The Company’s 2P NAV was $24.41 per share at year-end 2018, based on independent engineering pricing, or $13.38 per share, based on a more conservative pricing assumption of flat US$55.00/bbl.
• Excluding any value attributed to land and seismic, Crescent Point’s year-end 2P NAV increased by four percent to $11.37 per share in 2018. This NAV includes $6.01 per share of developed producing value for the Company’s existing production over its remaining economic life, as represented by its year-end 2018 proved and probable developed producing reserves.
• The Company’s 1P and PDP NAVs at US$55.00/bbl increased by approximately eight percent and 11 percent, respectively, in 2018, excluding any value attributed to land and seismic.

Before Tax Net Asset Value Per Share, Fully Diluted, as at December 31, 2018 at Flat Pricing of US$55.00/bbl

BOARD RENEWAL PROCESS

As part of Crescent Point’s ongoing Board of Directors (“Board”) renewal process, and as previously announced, Mr. Dielwart has joined the Board as a new independent director. The Company also announces today the retirement of Rene Amirault from its Board.

“Rene has provided Crescent Point valuable guidance, especially in his most recent role as Chair of our Environmental, Health and Safety Committee,” said Bob Heinemann, Chairman of the Board. “We’ve appreciated his strong focus on efficient operations, capital discipline and long-term strategy.”

As previously announced, Peter Bannister and Gerald Romanzin both plan to retire from the Board at the Company’s 2019 annual general meeting (“AGM”). Crescent Point remains committed to its deliberate and thoughtful Board renewal process and expects to replace its retiring members with additional independent Board members. Crescent Point’s Board expects to have completed a full Board renewal since 2014, following its 2019 AGM.

OUTLOOK

Since the second half of 2018, Crescent Point’s new management team has prioritized its key value drivers, which include disciplined capital allocation, cost reductions and balance sheet improvement.

The Company now allocates capital based on returns versus simple volume growth. This shift in focus has allowed Crescent Point to adopt a capital program with more consistent activity levels throughout the year and has resulted in increased competition for capital across the Company’s portfolio of assets.

Crescent Point has increased its emphasis on cost reductions compared to its historical focus on operational outperformance. Since September 2018, management has reduced the Company’s workforce, streamlined its executive team and implemented new initiatives that have resulted in significant savings in general and administrative costs, operating expenses and well costs. Crescent Point is also implementing new practices to further improve its controllable operating expenses. Further savings across the organization are expected as the Company continues to focus its asset base.

Crescent Point’s financial flexibility remains strong with cash and unutilized credit capacity of $1.62 billion, no material near-term debt maturities and a strong portfolio of oil and gas commodity hedges. As part of its transition plan, Crescent Point is targeting to further improve its balance sheet through net debt reduction by way of free cash flow generation and proceeds from any dispositions.

On January 15, 2019, the Company revised its dividend strategy. This new strategy provides increased flexibility in the event of lower commodity prices and enhanced free cash flow generation as commodity prices improve. Crescent Point also initiated a disposition process during first quarter 2019 to market its southeast Saskatchewan conventional assets while at the same time progressing the strategic divestment of certain infrastructure assets. The Company plans to remain disciplined and flexible throughout its divestiture processes.

As the Company generates additional cash flow at higher commodity prices or realizes proceeds from potential asset dispositions, it plans to continue prioritizing the allocation of such funds to further net debt reduction and accretive share repurchases. Based on an updated adjusted funds flow sensitivity of approximately $40 million for every US$1.00/bbl change in WTI, the Company expects to realize over $400 million of excess cash flow in 2019 based on its guidance and current strip prices, including approximately $50 million of hedging gains.

As at March 1, 2019, Crescent Point had, on average, over 40 percent of its oil and liquids production, net of royalty interest, hedged through 2019. The Company has also recently added oil hedges at attractive prices extending through to third quarter 2020.

Crescent Point is on track with its 2019 budget, which remains unchanged, with annual average production of 170,000 to 174,000 boe/d and capital expenditures of $1.20 to $1.30 billion. The Company expects to update shareholders as it continues to execute its transition plan and elect new independent directors as part of its Board renewal process.

Summary of Reserves

The Company’s reserves were independently evaluated by GLJ Petroleum Consultants Ltd. (“GLJ”) and Sproule Associates Limited (“Sproule”) as at December 31, 2018 and were aggregated by GLJ. The reserves evaluation and reporting was conducted in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (“COGEH”) and National Instrument 51-101 Standards for Disclosure of Oil and Gas Activities (“NI 51-101”).

As at December 31, 2018 ^{(1) (2) (3) (4) (5)} 

Summary of Before Tax Net Present Values

As at December 31, 2018 ^{(1)  (2)  (3)}

RESERVES RECONCILIATION

Gross Reserves ^{(1) (2) (3) (4)}

Finding and Development Costs

Future Development Capital

At year-end 2018, FDC for 2P reserves totaled $7.0 billion, compared to $6.9 billion at year-end 2017. Net of A&D, FDC at year-end 2018 increased primarily due to the addition of new drilling locations identified by the Company.

CONFERENCE CALL DETAILS

Crescent Point management will host a conference call on Thursday, March 7, 2019 at 10:00 a.m. MT (12:00 p.m. ET) to discuss the Company’s results and outlook. A slide deck will accompany the conference call and can be found on Crescent Point’s home page.

Participants can listen to this event online at https://event.on24.com/wcc/r/1938081/3C8AE3F85E3132D87BFE894A568308B4. Alternatively, the conference call can be accessed by dialing 1‑888‑390‑0605.

The webcast will be archived for replay and can be accessed on Crescent Point’s website at https://www.crescentpointenergy.com/invest/conference-calls-webcasts. 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.

2019 GUIDANCE

The Company’s guidance for 2019 is as follows:

The Company’s audited financial statements and management’s discussion and analysis for the year ended December 31, 2018, will be available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com, on EDGAR at www.sec.gov/edgar.shtml and on Crescent Point’s website at www.crescentpointenergy.com.

FINANCIAL AND OPERATING HIGHLIGHTS

Non-GAAP Financial Measures

Throughout this press release, the Company uses the terms “adjusted funds flow from operations”, “adjusted funds flow from operations per share – diluted”, “adjusted net earnings from operations”, “adjusted net earnings from operations per share – diluted”, “excess cash flow”, “free cash flow”, “net debt”, “net debt to adjusted funds flow from operations”, “netback” and “payout 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.

Adjusted funds flow is equivalent to adjusted funds flow from operations. Adjusted funds flow from operations is calculated based on cash flow from operating activities before changes in non-cash working capital, transaction costs and decommissioning expenditures. Adjusted funds flow from operations per share – diluted is calculated as adjusted funds flow from operations divided by the number of weighted average diluted shares outstanding. Transaction costs are excluded as they vary based on the Company’s acquisition activity and to ensure that this metric is more comparable between periods. Decommissioning expenditures are excluded as the Company has a voluntary reclamation fund to fund decommissioning costs. Management utilizes adjusted funds flow from operations as a key measure to assess the ability of the Company to finance dividends, operating activities, capital expenditures and debt repayments. Adjusted funds flow from operations as presented is not intended to represent cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS.

The following table reconciles cash flow from operating activities to adjusted funds flow from operations:

Adjusted net earnings from operations is calculated based on net income before amortization of exploration and evaluation (“E&E”) undeveloped land, impairment or impairment recoveries on property, plant and equipment (“PP&E”), unrealized derivative gains or losses, unrealized foreign exchange gain or loss on translation of hedged US dollar long-term debt, unrealized gains or losses on long-term investments and gains or losses on capital acquisitions and dispositions. Adjusted net earnings from operations per share – diluted is calculated as adjusted net earnings from operations divided by the number of weighted average diluted shares outstanding. Management utilizes adjusted net earnings from operations to present a measure of financial performance that is more comparable between periods. Adjusted net earnings from operations as presented is not intended to represent net earnings or other measures of financial performance calculated in accordance with IFRS.

The following table reconciles net income to adjusted net earnings from operations:

Free cash flow is calculated as adjusted funds flow less capital expenditures. Excess cash flow is calculated as free cash flow less dividends. Management utilizes excess cash flow and free cash flow as key measures to assess the ability of the Company to finance dividends, potential share repurchases, debt repayments and returns-based growth.

Net debt is calculated as long-term debt plus accounts payable and accrued liabilities, dividends payable and long-term compensation liability, less cash, accounts receivable, prepaids and deposits and long-term investments, excluding the unrealized foreign exchange on translation of US dollar long-term debt. Management utilizes net debt as a key measure to assess the liquidity of the Company.

The following table reconciles long-term debt to net debt:

Net debt to adjusted funds flow from operations is calculated as the period end net debt divided by the sum of adjusted funds flow from operations for the trailing four quarters. The ratio of net debt to adjusted funds flow from operations is used by management to measure the Company’s overall debt position and to measure the strength of the Company’s balance sheet. Crescent Point monitors this ratio and uses this as a key measure in making decisions regarding financing, capital spending and dividend levels.

Operating netback is calculated on a per boe basis as oil and gas sales, less royalties, operating and transportation expenses. Funds flow from operations netback is calculated on a per boe basis as operating netback less net purchased products, realized derivative gains and losses, general and administrative expenses, interest on long-term debt, foreign exchange and cash-settled share-based compensation, excluding transaction costs, foreign exchange on US dollar long-term debt and certain non-cash items. Operating netback and funds flow from operations netback are common metrics used in the oil and gas industry and are used by management to measure operating results on a per boe basis to better analyze performance against prior periods on a comparable basis. Netback calculations are shown in the Financial and Operating Highlights section in this press release.

Payout ratio is calculated on a percentage basis as dividends declared divided by adjusted funds flow from operations. Payout ratio is used by management to monitor the dividend policy and the amount of adjusted funds flow from operations retained by the Company for capital reinvestment.

Management believes the presentation of the Non-GAAP 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” and “possible reserves” (each 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 reserves and permits optional disclosure of “possible reserves”, each as defined in NI 51-101. Accordingly, “proved reserves”, “probable reserves” and “possible 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. “Possible reserves” are higher risk than “probable reserves” and are generally believed to be less likely to be accurately estimated or recovered than “probable 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.