Pruning the Portfolio – Disposition of North Dakota
Our view: Crescent Point’s disposition of its North Dakota assets reinforces its focus on liquids-rich WCSB prospects and primary development in the Montney and Duvernay. The $675 million transaction figure was within the range of our original target value (albeit at the low end) and cleans up the portfolio, paving the way for a more focused footprint and providing liquidity for potential future bolt-ons. Reiterate Outperform.
Key points:
• Deal Summary – Sale of North Dakota. CPG has agreed to sell its North Dakota assets to a private operator for approximately $675 million (US $500 million). The announcement follows its Montney SDE transaction (see more – here), Kaybob Duvernay transaction (see more - here) and an overall strategy of focusing on core liquids-rich combined with the legacy footprint. Metrics of $29,000/boe/d and ~1.8x NOI (at US$75 WTI) appear reasonable and generally in line with a $650 miilion PDP (proved producing) reserve value. The disposition includes 23.5 mboe/d (89% liquids) of production, which would be expected to decline to 18 mboe/ d by 2027 in the plan.
• Financial Impact – Debt Reduction. Given the nature of the deal, the transaction will help accelerate the company's debt repayment efforts; pro-forma net debt is expected to be $2.2bn (0.9x D/CF) by YE23 on current strip. Our 2023 CFPS estimate decreases by 2% and CPG’s FCF yield increases to 23% (from 21%) as detailed in Exhibit 1. The company maintains considerable liquidity, leaving financial flexibility for potential future acquisitions, should they arise. We expect CPG to continue to pursue additional dispositions, with the company's SW Saskatchewan properties potentially fitting the bill.
• Guidance Update. With the transaction, CPG’s 2023 production guidance decreases to 156–161 mboe/d (from 160–166 mboe/d) with its capital budget trimmed to $1.1–1.2bn (from $1.2–1.3bn). Our updated estimates call for CPG to return roughly 60% of discretionary FCF to shareholders in the form of buybacks and dividends, mapping to roughly $576 million and $586 million in 2023 and 2024, respectively (at futures strip pricing). Our 2024 estimates have also been refreshed, with capex of $1.1 billion now supporting volumes of 148,000 boe/d.