Hi. I’ve looked at the info CPG has provided recently and I have some thoughts that I would appreciate feedback on. In particular, whether I missed a key piece of info or mis-read/mis-interpreted some info. Thank you.
My thoughts are based on info found in the following items on the company’s website:
- Q3 report released on Nov 2, 2023 (both the press release and the management discussion and analysis)
- Announcement on acquisition (press release dated Nov 6, 2023)
- Announcement on new shares offering (press release dated Nov 6, 2023)
- Presentation video released on Nov 6, 2023
In the presentation and the press release announcing the acquisition, it was stated that this deal was accretive immediately, and referenced some key numbers. So, looking at these numbers this is what I found.
A) Estimated production levels for 2024 (preliminary 2024 guidance)
From press release on acquisition: range of 200,000-208,000 boe/d
From the Q3 report (i.e. before this acquisition) the estimate was 145,000-151,000 boe/d
Based on these numbers the acquisition represents an increase of 37.9%.
B) Preliminary Capital Expenditures (preliminary 2024 guidance)
From press release on acquisition: range of $1.45-1.55 billion
From the Q3 report (i.e. before this acquisition) the estimate was $1.05-1.15 billion
Based on these numbers the acquisition represents an increase of 38.1% (low end) to 34.8% (high end). This indicates to me that the CAPEX needed to achieve the increased production is approximately the same as their current production assets, or a little better.
C) Excess Cash Flow (preliminary 2024 guidance)
From press release on acquisition: $1.2 Billion
From the Q3 report (i.e. before this acquisition) the estimate was $1.0 Billion
The change is 20%. Given production levels are estimated to increase by 38%, this indicates to me that this increased production is much more costly (i.e. costs other than CAPEX related to this new asset is higher than the current).
D) Change in number of shares
There are two sets of shares being issued as a result of this acquisition. First, the shares given to shareholders of Hammerhead. According to the press release on this acquisition this amounts to 53.2 million shares. The second is the new shares being sold. According to the related press release this is 48.55 million. This totals 101.75 million new shares.
Based on Q3 management discussion and analysis, as of November 1, 2023, there were 524,794,451 common shares outstanding (page 21).
Given this information, the shares outstanding have increased by 19.4%.
E) Excess cash flow per share
Based on numbers in C and D above, I get the following:
With acquisition: 1.9153/share
Before acquisition: 1.9055/share
This is an increase of 0.51%.
Again, both in the press release announcing the acquisition and the video presentation on their website, they state that this acquisition is accretive immediately. The company has stated that this acquisition is:
“Accretive to 2024 metrics and enhances excess cash flow per share by over 15 percent, on average, throughout the five-year plan.”
Based on the increase in excess cash flow per share, it is accretive, but I don’t consider a 0.51% increase in this metric in 2024 as being significant. Furthermore, it means that the subsequent four years of a five-year plan needs to leverage this new asset much more significantly.
What am I missing here?