Revised Targets Crescent Point Energy Corp. is “continuing to optimize” its portfolio with the US$500-million sale of its holdings in North Dakota, according to National Bank Financial analyst Travis Wood.
The deal with a private operator involves assets that had gross production of approximately 23,500 barrels oil per day in the second quarter with annualized net operating income of approximately $375-million at a WTI price of approximately US$75 per barrel. The company pointed to a “limited drilling inventory” and the expectation that production would decrease to 18,000 boe/d by 2027 and decline further in future years.
“The sales price implies transaction metrics of approximately $27,000/ boe/d and 1.8 times P/CF [price to cash flow], slightly lower than our expected range (estimating closer to 1P, or $0.8-1.0 billion as opposed to PDP value),” said Mr. Wood.
“However, despite the lower-than-expected price, we do respect the fact that limited inventory outside the core of the play coupled with a high decline could limit the potential number of suitors and incentive to pay more. The sale becomes more about strategic position across the portfolio, thereby freeing up cash to be spent on higher return assets (ND was forecast to decline to 18 mboe/d over the next three years). In our view, management continues to execute on plan, reshaping the portfolio via strategic A&D, while delivering on a clearly defined FCF strategy that should expand as debt is further reduced.”
With the deal, Crescent Point lowered its 2023 annual average production guidance to a range of 156,000 to 161,000 boe/d, which is a reduction of approximately 4,500 boe/d. Its capital expenditures guidance declined by approximately $100-million, to a range of $1.05-$1.15-billion.
Those changes led Mr. Wood to cut his 2023 and 2024 production and cash flow projections, leading him to trim his target for its shares to $16 from $18 with an “outperform” recommendation (unchanged). The average on the Street is $13.77.
Elsewhere, other analysts making changes include:
* ATB Capital Markets’ Amir Arif to $13 from $14 with an “outperform” rating.
“While the sale helps focus the company’s asset base better and reduces debt levels, it makes the EV/EBITDA post sale valuation look slightly more expensive given the asset sale multiple of 1.8 times relative to the corporate multiple of 3.4 times 2023 EV/DACF [enterprise value to debt-adjusted cash flow] at strip pricing prior to the sale,” said Mr. Arif. “As a result, we are reducing our target price ... CPG historically traded at a discount to the group. This discount eroded away during the past year as the company further repositioned its asset base with its expanded Duvernay and recent Montney acquisition. Although the corporate valuation is no longer at a discount to the group, we maintain our Outperform for now given our belief that there is some positive operational momentum still left in H2/23 as both core areas (Montney and Duvernay) still offer potential improvements in well performance relative to type curves based on recent well results. In the longer term, the asset sale focuses the company more on the Montney/Duvernay and removes an asset that would have started to become a headwind by late 2024 given the limited remaining inventory for the Bakken asset, as previously disclosed.”
* Desjardins Securities’ Chris MacCulloch to $13.50 from $14 with a “buy” rating.
“Our initial reaction to the disposition was slight disappointment given the C$675-million price tag landed below our expectations and implies a paltry multiple of 1.8 times based on annualized net operating income,” he said. “Moreover, our expectations were already tempered given the limited upside from the North Dakota properties, which are expected to have only 50 remaining locations in inventory following the 2023 drilling campaign. In hindsight, the other read-through is that there was likely a limited set of prospective buyers for an effectively PDP asset, which may have capped bids, even following the resurgence of oil prices.
“Nevertheless, we view the disposition as a necessary step for the company, both from a balance sheet repair perspective and in terms of further high-grading the corporate portfolio. Going forward, portfolio optimization is largely complete, with only the pending disposition of Turner Valley (3,000 boe/d) and the potential sale of Swan Hills (3,000 boe/d) remaining, although neither asset is expected to attract a meaningful bid given considerable ARO. To put a finer point on it, following [Thursday’s] transaction, our working assumption is that the company will retain its Shaunavon assets until it gains additional scale in the Montney/Duvernay. While this could occur through an acceleration of organic growth or additional M&A, either option will require further balance sheet deleveraging, not to mention a sweetening of capital returns allocation for patient investors. We look forward to more clarity when the company releases 2024 guidance later this fall.”