A new article regarding CPG was published on Seeking Alpha. The text of the article is below. The author presents a fairly balanced view of the company based in data rather than, what you often find on this board, irrelevent nonsense of butt-hurt shareholders:
Crescent Point Energy (NYSE:CPG) made a nice acquisition of some properties from Shell (RDS.B) (RDS.A). Now it is time for management to demonstrate the benefits of this acquisition by referencing specific accomplishments to the newly acquired properties. The stock made a nice jump on the announcement. That could be the beginning of a lot more appreciation if management can demonstrate the benefits of the acquisition to the benefit of Mr. Market. The accretive metrics are actually even better than what is shown because 50 million shares were issued as part of the deal. In return for some shareholder dilution, the deal remains accretive to shareholders and the debt becomes easier to pay back than the slide above implies. The result is this acquisition actually improves key balance sheet ratios while growing production per share.
Note that shareholders should expect a fair amount of expenses from the acquisition and from maximizing the operations of the newly combined company. An acquisition of this size could easily take a good six months to completely assimilate. It may take longer depending upon the issues that management finds after they fully control the acquired properties.
The "inventory" will likely increase as technology continues to improve. The Kaybob Duvernay is actually an area of Alberta that has long produced. But the changing technology has brought more intervals into commercial productivity. That keeps increasing the recovery potential. So an area like this could well produce for centuries as long as technology continues to improve at a decent pace.
The best news is that the company still has more than adequate liquidity to take advantage of any more bargains that present themselves. The debt due for this size company is really not that significant. The listing on the NYSE as well as the operations in North Dakota could well allow this company to float more bonds in the United States even though the operations are primarily in Canada.
Debt repayments are likely to remain a priority for some time to come as this company had far too much debt in its recent past. Therefore the current management is likely to be very sensitive about absolute amounts of debt and key debt ratios for some time to come. During this time period, debt costs may continue to decrease as the company continues to build a more conservative debt record than in the past.
One thing that confuses many shareholders is appropriate market valuation. This stock usually trades upon the perceived reasonable value of the business at a sustained oil price. Now that view can change through the normal market optimism and pessimism cycles. There are traders that study the oil market thoroughly and then trade these stocks to take advantage of the over-optimistic part of the cycle.
But for those that want to buy and hold, the idea that oil prices might remain high enough to provide enough of a cash inflow that would accelerate debt repayment and production growth may be enough incentive right now to consider investing. High oil prices for possibly six months are as good as a secondary stock offering. After that it is up to management to optimize the use of that cash influx.
The one thing that limits the effect of a downcycle is a history of growing production profitably. This company typically sports low production costs. Therefore future production growth is all but assured. That usually means each cycle has higher stock prices and also higher low stock prices during the next downturn.
The company has several cash flow generators already in place. Some of the older properties in Southeast Saskatchewan are secondary recovery properties with low decline rates. Canada usually offers a low cost secondary recovery prospect because the oil is not as far from the surface as it frequently is in the United States. Therefore the wells are much lower cost and the whole project has a faster payback.
The new acquisition which is in Alberta offers the participation in the unconventional market that could well give the stock price a boost now that the company has its finances in decent shape. Interestingly, the mix of secondary and unconventional assets gives the company a low average corporate decline rate. That may be seen by the market as a competitive advantage.
One of the advantages of the new properties is the amount of condensate produced. Condensate in Canada frequently trades at a premium to light oil quotes because Canada does not produce enough condensate to mix with heavy and thermal oil so they can flow through pipelines. Therefore Canada frequently has to import enough condensate at considerable costs.
Condensate is therefore a relatively high-margin product that retains relatively high margins during downturns. That product can therefore help to achieve a smaller payback period and higher rates of return. This leads to an important long-term competitive advantage.
The Future
The first thing investors are likely to see is a lot of acquisition costs that distort quarterly results. This will run concurrently with a fair amount of capital costs needed to optimize acquisitions. Probably somewhere in the latter half of the fiscal year the financial statements will clean up enough to make some sense of the success of the acquisitions.
This is a relatively large acquisition for the size of the company. Large acquisitions can be somewhat riskier due to the sheer logistics of assimilating a large acquisition when compared to the far more common small acquisitions. The projected benefits appear to make the acquisition worth the risks.
The first quarter results are probably not nearly as important as the results of the acquisition. It could take a good six months or longer for financial statements to accurately reflect the results of this acquisition.
Long term, if the benefits of the acquired properties meet expectations, the current stock price could prove to be very cheap.
The stock price has given back some of the gains associated with the original announcement of the acquisition. This is actually fairly typical. It means the patient investor does not have to generally run out and "grab the stock the minute the announcement is made". Patient investors often have plenty of time to do their due diligence and can then plan how to invest. If this pullback did not happen with the current event, there will likely be plenty in the future where that pullback happens. Now in the market's eyes "it is showtime". It is time for management to demonstrate the benefits of this acquisition.
There may still be more potential investment chances given that there are plenty of acquisition related charges ahead along with operational optimization capital investments. Since nothing is a sure thing, dollar cost averaging may be the way to go in a situation like this. In any event the current price is a reasonable entry point whether or not the stock heads to a lower price.