This is the initial TD Report on Q3 results: it's possible that they may provide additional information by tomorrow with a new rating as willl other institutions:
Event: Reports Q3 Results
Impact: NEUTRAL
Headline Figures As Expected: Production of 132.2 mBOE/d was in line with TD/ Consensus (133.3/131.2 mBOE/d). CFPS of $0.67 also matched TD/Consensus of $0.67. CPG generated FCF of $202 million during the quarter.
New Kaybob Duvernay Farm-in Agreement: Incremental to the acquisition of the Duvernay asset from Shell, Crescent Point announced that it entered a new farmin agreement at Kaybob. Although details are confidential, CPG agreed to complete wells for an undisclosed W.I. in those wells and additional land.
Duvernay Cost Savings...Production Results to Come: CPG provided evidence that it is executing on its previously-stated goals to reduce capital costs at Kaybob. With Q3 results, the company indicated completion costs of the first 5-well pad associated with the new farm-in came in 20% ($1mm) below budget in the area - improving single well IRRs by ~10%. The company's first CPG-drilled well pad on the properties acquired from Shell will see completion operations begin early Q4 with the company expecting costs in line with the recent farm-in wells.
Our View: We are focused on CPG's Duvernay capital costs, and soon, well performance, as success in the play should prove instrumental in providing the company with a large, scalable, high-impact opportunity with economics that compete with its existing portfolio of high IRR, but lower, impact wells. Tightening Guidance Ranges: CPG is now targeting the upper end of its previous production guidance range and capital budget. As with other producers who have reported thus far, CPG is nudging up expectations for operating costs and royalty assumptions due to rising commodity prices.
TD Investment Conclusion: Significant FCF, Rapidly Improving Debt Metrics Paves Way for RoC: CPG generated $202mm FCF in Q3. We expect FCF of $883mm in 2022 (at US$67 WTI) with the company exiting 2022E with D/CF of 0.8x. At strip pricing, these figures improve to $1.1 billion of FCF and YE-2022 D/CF of 0.5x. With CPG currently trading at a 2022E FCF yield of 26% and paying a comparatively small dividend (2% yield), there is significant FCF to enhance shareholder returns through a combination of yetto-be-announced base/variable dividend increases, buy-backs, and accretive M&A.
Buy Rating: Current 12 month price target: $9.50