Smart?....or Stupid move...?By Crescent, regarding the recent asset sale? As a multiple, previous s/h (but NOT currently!) of the company and a dedicated multi-decade follower of this sector, this is just a brief assessment of CPG's latest move and a more detailed follow-up to my last post here. So was this a smart move on the behalf of CPG mgmt .....for the benefit of the company .....or not?
I think this is a good question to seek some valid answers for s/h, because it seems to have created quite the commotion and a big difference of varying opinions on here regarding this "questionable" transaction. And to properly answer whether this was a good deal to make or not, we need to look much deeper, at the more intimate, small details AND try to also answer WHY this was done. Why? Because if we just look at JUST the superficial details of this deal, and the terms, something seems to be a little off and not quite.....hmmm.....how should i put this....not quite "normal"....let's say.
Therefore, lets review the actual deal to see what's really going on here. It seems that Crescent Point "divested assets" contained in this deal were ~23K boepd 90% liquids, most likely all very light very sweet, about ~40 api crude making up the portion of the liquids. So bascially VERY premium stuff, crude, just a notch below what Saudi Arabia is pulling out of their wells. Which for those that don't know, is really high quality crude which is very easy, low cost to refine and sells at a much higher premium than the rest.
So then we must ask ourselves why did Crescent Point mgmt decide to "get rid" of those assets for only $500M us or $670M cdn or a mind boggling $30K cdn per flowing barrel? Which for all intents or purposes is really at the low end of the spectrum in terms of value received and imho completely insane (or is it?) if we take into consideration other, recent similar deals that were done in this sector. At barely ~30K per boepd, this would put Crescent's sale to Kraken as one of the best deals for the.......acquirer NOT the seller.....meaning CPG! So if we dig a bit deeper, can we fing out WHY Crescent Point mgmt decided this was a good move or asset sale for the company and it's holders?
Well, CPG seems to indicate that production in those assets was in "steep" decline (or were they?) and they've decided to consolidate JUST core assets and foucus mainly on the Canadian side in Kaybob & Montney. Of which the latter is understandable and one can make a case for that "strategic" move, BUT just one nagging thing in regards to the former, and the supposed decline in production. Was the decline in production levels for the ND assets due to a some "unfixable" production issues, some unexpected geological obstacles encountered or just simply the lack of the properly required CapEx needed to both maintain & increase production? And if it's the last option as the main reason, were those assets more or less neglected and not a top priority any longer for CPG?
Whatever the case may be, it seems obvious that CPG mgmt did not coinsdier those assets as CORE assets any longer and they weren't part of the overall agenda & objectives of the company in the future. So assuming that was ONE of the reason, why such a hasty sale at such a low selling price and how long did CPG have these assets up for sale and was Kraken the ONLY pontetial buyer. If we were to factor in a "normal" sale, so to speak of, with standard, reasonable current market terms (based on similar sales!), these assets REALLY should have for at least DOUBLE the sale price they were sold at. or at the bare minimum of ~$1B or 50K cdn per flowing barrel. So MANY questions still left unanswered here.
Even if we were to accept the facts, as told by CPG mgmt that these assets weren't CORE assets any longer and that production was in "decline" as they've put it, from current levels of ~23k to eventual levels of ~18,5K, i'm assuming here that THAT decline wasn't overnight and it was gradual. So EVEN if we accept CPG reasoning/excuses here, at 18,5K boepd, that puts the sell price STILL just barely $35K per flowing barrel. Which is still confusing & mind boggling (for me anyways!) because that's even BELOW the level where heavily weighted unrpofitable natural gas assets are being sold at. So what's reallygoing on here? Was GPG in such a rush to sell at "almost" any price to the first interested party, with no consideration or patience to wait or weigh other offers....to just get out ASAP? Did they really, desperately need some cash quickly for some apparant reason? Who knows really......
BUT one thing is 100% certain, as mentioned before and contrary to the moves that both Baytex & Ovintive have done. Crescent Point have shown their FULL hand and WHERE they intend to focus, Which is NOT in the US or on American assets and to totally stay laser focused and continue to both accumulate & develope their Canadian properties. If we take a look at their last few moves or transactions, along with this one, it seems obvious that the Montney play/formation is THE place they want to be in. Before they acquired the Spartan assets earlier this year, prior to that, they also picked up a few of Paramount's Kaybob assets. Strategic or just opportunistic? My guess is a little of both and a dash of political motvations as well.....
And i'll finish this assessment by "lightly" touching upon that last factor, the political front and with Crescent MAYBE placing or hedging their bets on some political outcomes in the not-to-distant future. It's POSSIBLE that maybe the mgmt, bod, & large s/h of CPG saw the light and concluded that it's more likely that the fearless, super woke, enemy of O&G fool Justino Trudope is more likely to be defeated in his election campaign in 2025 than his American counterpart, Sleep Creepy Senile Joe in his upcoming election later in 2024. Which imho MAY HAVE played a part in CPG's quick & cheap exit from those valuable North Dakota assets.
But here again who really knows what were the TRUE reasons, factors & motivations for the sale, as all this is all pure speculation & assumptions on my part. But i'll bet you that i;m NOT that far off from the actual truth........8). Therefore my friends, at this time we REALLY don't KNOW whether this a a smart or stupid move by CPG mgmt.........just yet. Be we will have a good idea by the end of 2024 and we'll certainly know 100% by the end of 2025
GLTA