RBC 8$ PT now. still too low imoOctober 17, 2021
Crescent Point Energy Corp. Company description Crescent Point Energy Corp. is a dividend-paying exploration and production company focused on acquiring and exploiting large original oil in place (OOIP) pools. The company is the largest producer in the SE Saskatchewan Bakken play and also the key player in the Lower Shaunavon medium-oil play in SW Saskatchewan.
Investment summary We expect Crescent Point shares to outperform the peer group average. The company has exposure to large resource plays and low-risk development opportunities, which provide strong relative economics. Highlights of the story are as follows:
• Crude levered. Crescent Point’s production base is ~85% weighted to crude oil and liquids. Production is concentrated in Saskatchewan, where the company holds substantial positions in the Bakken and Lower Shaunavon plays.
• Attractive drilling opportunities. Crescent Point has an attractive inventory of drilling locations in multiple areas, including the Viewfield, Shaunavon, SK Viking, Flat Lake, and Duvernay plays, that produce attractive rates of return at current oil prices.
• Waterflood initiatives have the potential to offset declines. The company is focused on implementing waterfloods on mature reservoirs in order to mitigate decline rates and increase ultimate recoveries. This has the potential to reduce go-forward maintenance capital requirements, allowing the company to allocate more capital to growth prospects
Crescent Point Energy Corp.
Valuation Our estimate of CPG's NAVPS is based on a long-term crude oil (WTI) price of US$55/bbl, long-term natural gas (Henry Hub) price of US$3/mmBtu, and a discount rate of 8.5%. Our base case price target of $8 is based on a target multiple of 0.9x our base NAVPS. Our price target supports an Outperform rating.
Crescent Point Energy Corp. October 17, 2021 Michael Harvey, P.Eng. (403) 299-6998; michael.harvey@rbccm.com 5 Risks to rating and price target The most significant risk to our price target and rating is an unexpected change in the outlook for crude oil prices. The valuation of oil and gas assets is subject to risk with respect to reservoir performance, including production decline rates and expected recovery factors.
Other risks include the effect of foreign exchange and government legislation as it relates to royalties, income taxes, and environmental policy. Further potential risks to our price target and rating include:
1. Variable drilling program results. Crescent Point’s future growth is highly dependent on continued drilling success within its development plays. If results turn out to be below expectations or operational issues exist, this could hamper the company’s growth profile significantly and have a negative effect on its stock price.
2. Fluctuation in commodity prices. As with any oil and gas company, a major risk is a downturn in commodity prices. CPG's production is only partially hedged going forward, as such, the company continues to be exposed to changes in commodity pricing.