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Crescent Point Energy Corp.
(CPG-T) C$9.48
Strong Q2; Return of Capital Plan Now in Full Swing
Event
Reports Q2 Results (Guidance Unchanged, Return of Capital Plan Pre-Announced)
Impact: POSITIVE
Q2 Results Ahead of Expectations: Q2 production of 129.2 mBOE/d was ahead of Consensus (127.5 mBOE/d) and TD (126.0 mBOE/d) estimates. CFPS of $1.03 also beat Consensus ($0.97) and TD ($1.00). The stronger-than-expected CF was largely due to the higher production volumes. E&D capex of $201mm was in line with our estimate, while FY2022 capex guidance of $875-900mm was unchanged.
Our View:
Our 2023 capex estimate of $1.025B reflects our view of inflationary pressures.
Crescent Point generated $380mm of FCF during the quarter and utilized this cash to pay its base dividend ($37mm), buyback 7.2mm shares ($71mm), and reduce net debt by ~$300mm, after minor dispositions. Post closing of the recent Viking disposition (announced July 6), the company achieved its net debt target of <$1.3B which prompted the company to articulate a formulaic return of capital strategy - 50% of FCF after base dividends (see here).
We forecast CPG will exhaust its current NCIB by Q1/23, which could result in special dividends early next year. Between Q3/22 and Q4/23, we forecast the company will return $1.1B to shareholders (17% of mkt. cap.) while reducing leverage by another ~$800mm to 0.3x D/CF.
Continued Strong Results from Recent Kaybob Duvernay Pad. Crescent Point's second operated Duvernay pad had an average IP30 of >900 BOE/d per well (71% condensate; 79% total liquids), which the company expects to payout in less than six months at current commodity pricing. These rates are an ~10% improvement from the company's first pad in the play earlier this year. Moreover, drilling times have been reduced to 14 days (down >30% since entering the play), which should help offset some inflationary cost pressures.
TD Investment Conclusion
We see this as a positive quarter from both a financial and operational perspective with the company now fully transitioned to provide significant return of capital to shareholders going forward. We also believe the improved Duvernay results should provide the market with more comfort in Crescent Point's ability to execute in the play. We reiterate our ACTION LIST BUY rating and $19.00 target.
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