National BankCrescent Point Energy Corp. CPG (TSX; NYSE): C$9.06; US$6.65 Stock Rating: Outperform Target: C$14.50 Montney Acquisition (Outlook Impact: Positive)
The announcement to acquire 600 locations of high-impact liquids-based Montney assets is highly accretive to our cash flow forecast at +20%. Consistent with the inventory theme and considering Crescent Point's core Duvernay position today, these Montney assets further bolster Crescent Point's depth of inventory (now 15 years of premium inventory). We would expect returns will be enhanced over time as the company works to leverage and optimize costs and operating efficiencies from the volatile oil region.
We will be updating our estimates to reflect the acquisition following this morning's conference call at 8:30 a.m. ET (webcast link).
The acquisition includes 38 mboe/d (55% liquids) of current production and 600 net Alberta Montney drilling locations (more details below). Looking forward, Crescent Point intends to grow annual corporate production to 195 mboe/ d by 2027 (an increase of ~43 mboe/d from its previous outlook) with 60% of production associated with its Kaybob Duvernay and Montney assets.
Non-core asset divestitures will continue to be evaluated which will further optimize the overall portfolio (we earmark the North Dakota Bakken as the most interesting/impactful).
The $1.7 billion acquisition of Spartan Delta's Montney assets will be funded with cash through the company's existing credit facilities and based on production of 38 mboe/d and 206.7 mmboe of 2P reserves (and assuming US$70-75/bbl WTI and $3.50/mcf AECO), represents transaction metrics of 3.2-3.4x P/CF, ~$45,000 boe/d, and $8.23/boe of 2P reserves.
Additionally, Crescent Point has agreed to a new two-year $400 million revolving credit facility (now ~$2.8 bln total) to bolster liquidity. The acquisition also includes 235,000 net acres of Alberta Montney lands in the Gold Creek and Karr areas and 600 net Montney drilling locations (~20 years) on top of the 500 Duvernay locations detailed at last week's investor presentation. The transaction is expected to close in Q2/2023 (we are assuming June 1).
As a result of the acquisition, Crescent Point has revised its 2023 guidance as well as provided an update to its fiveyear outlook. The company is now expecting to spend $1.15-$1.25 billion in 2023 (up from $1.0-$1.1 bln) to support average production of 160-166 mboe/d (75% liquids; up from 138-142 mboe/d). The revised budget includes ~$150 million associated with the newly acquired assets, with a plan to drill ~25 wells per year in the Montney (spending ~ $250 mln per year). On the return of capital front, Crescent Point will continue to target sustainable base dividend growth while returning ~50% of FCF (post-dividend) to shareholders.
Crescent Point trades at a discounted valuation of 2.2x 2023E EV/DACF relative to its peers at 3.3x and its three-year historical average of 3.2x. We maintain our Outperform rating and $14.50 target price which remains based on a 2023E EV/DACF multiple of 3.5x.