CIBC report on CPGCIBC reaffirmed its C$7 target for CPG. Here is the report it published this mroning in response to CPG's disposition of its SE SK assets:
CRESCENT POINT ENERGY CORP.
Disposition Of Non-core SE Saskatchewan Assets
Our Conclusion
Crescent Point announced the closing of a southeast Saskatchewan asset disposition for proceeds of $93 million. This transaction was more focused on reducing corporate abandonment liability than accelerating the repayment of outstanding leverage given the future retirement obligation associated with this asset was ~$220 million or ~25% of the corporate ARO. We view this transaction as a modest net positive to the company in that it helps remove a significant abandonment liability from the company’s balance sheet, but that there is little impact to our near-term fundamental expectations for the company, and our thesis of it continuing to outperform remains intact.
Key Takeaways
Transaction details. Crescent Point announced the closing of a southeast Saskatchewan asset disposition for cash proceeds of $93 million. The company estimates current production on the asset is ~6,500 Boe/d (~90% liquids) with cash flow at current commodity prices (US$60/Bbl WTI) of ~$55 million. This implies transaction metrics of $14,308/Boe/d and 1.7x cash flow vs. Crescent Point’s pre-transaction trading metrics of $31,310/Boe/d and 2.3x (2022E EV/DACF). Notwithstanding these metrics, we view this transaction as being net in line with the company’s free cash flow yield given the abandonment liability and sustaining capex requirements to maintain current production.
ARO balance reduced by 25%. Through the disposition, Crescent Point reduced its ARO balance by ~25% or ~$220 million. We highlight this asset had ~1,500 inactive wells and 1,250 active wells (of which ~2/3 showed less than six boe/d of production). We estimate at US$65 WTI this asset would have generated ~$25 million in free cash flow after sustaining capex plus an incremental ~$10 million of annual reclamation spending.
Revised 2021 guidance. Crescent Point has lowered its production guidance by ~4,000 Boe/d at the midpoint to reflect the asset disposition, to 128,000 – 132,000 Boe/d from 132,000 – 136,000 boe/d. Capital spending has remained unchanged at $575 million to $625 million in 2021 (in line with our expectations of $599 million).
Valuation. Crescent Point trades at a 2022E EV/DACF of 2.3x vs. the oilweighted SMID cap group at a 2022E EV/DACF of 3.2x,
Price Target Calculation Our 12- to 18-month price target of $7.00 is based on a target 2022E EV/DACF multiple of 2.9x on strip pricing. We estimate strip net debt of $1,014MM in 2022E.