STRONG Q1 PRODUCTION. CATALYSTS COMING
THE TD COWEN INSIGHT
Strong asset-level performance resulted in better-than-expected Q1 production. Looking ahead, we anticipate a combination of operational, strategic, and financial catalysts will continue result in share price outperformance over the coming quarters. In general, it appears to us that well performance is tracking ahead of expectations, with per well capital costs likely tending lower.
Event: Reports Q1 Results. Guidance Unchanged (From Earlier This Week).
Impact: SLIGHTLY POSITIVE
Stronger-Than-Expected Q1 Production Driven by Performance Across its Portfolio:
Q1 production of 198.6 mBOE/d was ahead of both TD/Consensus (~192 mBOE/d). We understand that of the outperformance, 3-4 mBOE/d came from Montney/Duvernay, with 2 mBOE/d derived from its Saskatchewan properties. CFPS of $0.90 exceeded TD's forecast ($0.83) and Consensus ($0.86).
Our View of Next Catalysts:
Potential Infrastructure Sale Could Accelerate Debt Goal: As we highlighted in our note this week (here), we believe it is possible Crescent Point could raise proceeds of ~$0.5B through the divestiture of infrastructure assets acquired from Hammerhead. This is significant as, with success, it could accelerate debt reduction and allow the company to achieve its $2.2B net debt target in 2024.
Meeting Debt Target Could Result in Additional Positive Tailwinds: Once the company's debt target is met, we believe this could be a catalyst for two positive milestones:
1) a potential Canadian IG credit rating, and 2) an increase to its return of capital to commitment from 60% of FCF to a TD-estimated ~70%+.
Well Results and Cost Savings on Hammerhead Assets: CPG intends to use wider inter well spacing (7 wells/sec vs. HHRS at 11 wells/sec) and save costs using plug and perf and slick water completions (vs. sliding sleeves/gel). This combined with better well placement should: 1) improve the average well rate relative to recent HHRS wells and 2) lower costs by up to $1mm/well.
Unallocated Capex in Plan: In our view, there are production tailwinds not captured in the guidance provided this week. Specifically, when CPG divested SK production, it updated volume guidance lower. It is our understanding that ~$50mm of capex was directed towards these assets in 2025E. We believe there is now ~$50mm of yet-to-be allocated capital within the current plan that could potentially be used for 3-5 additional high- impact wells if drilling/completion cadence tracks ahead of schedule; i.e. it is not enough to add an extra rig to a play, but sufficient to add ~3 mBOE/d (1.5% incremental growth).