CPG vs LEG
I have had a position in CPG since late 2008.
Over the years;
The Company has grown dramatically
The Share Count has grown dramatically
The Production has grown dramatically
The Reserves have grown dramatically
The Price of Oil has gone up, down and sideways (currently down)
The Share Price has gone up, down and sideways (currently down)
The FFO has gone up, down and sideways (currently down)
The Production/Share has gone up
The Reserves/Share has gone up
The one thing that has remained constant is the 23 cent/month dividend!
Over the years they have demonstrated the ability to make very good acquisitions financed primarily with Equity and a Minimum of Debt.
Over the years they have demonstrated the ability to increase the production, increase the value of their reserves and reduce the decline rates with a very effective capex program.
Over the years they have done an excellent job of protecting their cash flow with a very effective hedging program. They have also taken advantage of shipping Oil by Rail from their strategically located loading terminals to maximise their netbacks.
Over the years the only “dilution” issue I have had is the DRIP. If I remember correctly at one time the participation was close to 40%. It’s substantially less now. Personally I would like to see the DRIP eliminated at some point in the future. Now is not the time.
Crescent Point is currently going through a “rough patch” due to the current Oil price. It’s not the first time and won’t be the last time. That’s the nature of the Oil industry. Due to the strength of their Balance Sheet, Hedging Program, Quality of Assets and Quality of Management they are very well equipped to “weather this storm”.
If you believe (as some do) that $50 - $60 (or worse) WTI is the “new normal” you should probably sell all of your Oil price sensitive stocks.
If you have a more optimistic opinion re the future Oil price (as many, myself included do) make your decisions accordingly.
The Legacy Transaction
Personally I think that this is a “Good” transaction for Crescent Point. I think that in the current environment it is a “Fair” offer.
It’s understandable that the LEG shareholders are disappointed with the current $ value of the offer. The nature of share for share offers is that the $ value is a moving target.
In my opinion the current weakness in CPG is a result of the WTI rally stalling and all the “noise” re future Oil prices. With very few if any exceptions all the producers are under pressure. CPG and LEG have been trading in “Lock Step” which suggests that the Market expects the transaction to be done without modification in spite of Front Four’s opposition. There is no way to “estimate” what LEG would be trading at if this offer wasn’t on the table. I am not going to try.
Crescent Point has posted a Presentation re what the company will look like with the Legacy acquisition, you can find it here;
https://www.crescentpointenergy.com/files/18708.CPG-Legacy-Acquisition-June2015.pdf
At the end of the day the LEG shareholders will have to decide if they will be better off with 95 CPG c/w a $2.76 annual dividend that has been reliable for a very long time or 1,000 LEG.
The “Ball Is In Their Court”!
As Always; Do Your Own Due Diligence; It’s Your Money !!
PS: Somebody posted some statements allegedly from CIBC. The CIBC update I have access to doesn’t seem to contain those statements.
The Report I have access to dated 16 June 2015 has a Sector Outperform Rating c/w a 12 month $37.00 Price Target.
I am not going to attempt to copy and paste the entire report (it doesn’t work well) but here are the comments;
Crescent Point Energy Corp.
Reinstating SO Rating Following Close Of $660MM Financing |
| What's The Event |
| We are reinstating our SO rating on Crescent Point with an unchanged price target of $37.00 following the close of its $660MM bought deal equity financing (incl. $60MM over-allotment). The financing was announced in tandem with CPG's acquisition of Legacy (LEG-SP) for an all-share consideration of $1.5 bln. (including net debt of $967MM). The total consideration implied a value of $2.71 per Legacy share (a 7% discount to LEG's last closing price prior to the deal) based the price of $28.50 per CPG share on its conjoining $660MM equity financing. CPG issued 23.2MM shares for the bought deal in addition to 19.0MM in exchange for Legacy shares at a 0.095 ratio. We note that the financing is not conditional on the closing of the acquisition (which is expected on June 30). |
Acquired assets include current production of 22,000 Boe/d (82% liquids), 102.7 MBoe of 2P reserves, and ~1,000 net sections of land, of which 525 is contiguous to Crescent Point's core position in SE Saskatchewan (see Exhibit 1 on page 3). We note that at year-end 2014, Legacy had 2P reserves of 154.1 MMBoe (evaluated by Sproule). As such, the 102.7 MMBoe evaluated at the acquisition represented a 33% reduction to 2P reserves. Based on the reduced reserves and CPG's conservative 20,000 Boe/d H2/15 production estimate, we still find transaction metrics of ~$76,000 per flowing Boe/d and $14.87 per 2P Boe of reserves to be very attractive compared to CPG's trading metrics prior to the transaction of ~$113,800 per Boe/d and $21.56 per 2P Boe.
| Our revised forecasts are summarized on page 4. On a per share basis, we estimate the acquisition to be 4% accretive to production and accretive 3% to cash flow. We note that in tandem with the acquisition, Crescent Point increased its 2015 guidance to 162,500 Boe/d on $1.55 bln. capex (vs. from 152,500 Boe/d and $1.45 bln.). |
Implications
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| While we appreciate that the market is fatigued by Crescent Point's equity issuances, we like the Legacy acquisition due to its compelling transaction metrics and the resultant accretion. Under current forward strip pricing, CPG trades at a 2015E EV/DACF multiple of 7.4x and a P/Risked NAV of 98% (vs. the group at 6.9x and 111%) with a 10.2% yield (vs. the group at 5.8%). |
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