TD Currently have a $14.00 target. GLTA
Crescent Point Energy Corp.
(CPG-T) C$10.65
CPG's Future: Organic Execution on De-risked Assets
Event
Outlines Holistic Strategy of Now Fully Revamped Company. Changes Name
Impact: SLIGHTLY POSITIVE (No Changes in Estimates)
New Name Formalizes What We Already Appreciated — Modern CPG Bears
Virtually No Resemblance to Legacy Crescent Point: In recognition of the
completely repositioned portfolio and management transition that has taken place
since Craig Bryksa took the lead as President/CEO in 2018, Crescent Point will be
rebranded — Veren Inc. following the May 10 AGM. The remaining legacy SK assets
will consume only ~20% of capex, produce <30% of volumes, and will utilize its ~50%
contribution to FCF to grow the Montney/Duvernay.
Alberta Montney Cost Savings: Although the company has not incorporated
the capital cost savings in its 2024 budget or five-year plan, it anticipates that a
combination of bit optimization, monobore drilling, switch to plug-perf at G.C. West
(from sliding sleeve), and transition to slick water (from gel) could result in capital
savings of $1mm/well (to $9mm-$10.5mm). Across the 297 wells planned in the
Montney in the five-year development scenario, this could save nearly $300mm (i.e.,
$300mm in incremental FCF — or an ~7% increase in market value at a 12% FCF
yield).
Expect Return of Capital to Move Higher: CPG's current plan to return 60% of
FCF to shareholders will entirely take the form of the base dividend and NCIB (i.e.,
moving away from special dividends in the past). However, the company suggested
that as it brings debt down to a "target" of ~$2.2bln, it is planning to increase this
figure. Organically, we estimate that this could be attained by 2026 at flat US$75/bbl
WTI. It is probable that this timeline is accelerated with planned SK asset sales (and
potentially infrastructure/royalty divestitures), in our view. Although no guidance was
provided, we believe 75% of FCF to RoC is a reasonable expectation.
TD Investment Conclusion
Crescent Point has successfully transitioned to a Montney/Duvernay high-
impact producer, with growth supported by a low-decline legacy asset base in
Saskatchewan. The company now has ample quality inventory to support 20 years
of strong organic volume growth, and more importantly, FCF per share growth, while
increasing returns to shareholders