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Crescent Point Energy Fourth Quarter, Full Year 2020 Results

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   |    Friday,February 26,2021

Crescent Point Energy Corp. reported its Q4/full year 2020 results.

Highlights:

• Achieved annual average production ahead of 2020 guidance with capital expenditures under budget.
• Reduced net debt by over $615 million in 2020, driven by an accretive disposition and excess cash flow generation.
• Enhanced sustainability by reducing costs throughout the organization and lowering the production decline rate.
• Increased proved plus probable net asset value per share, excluding changes in pricing, by approximately 13 percent.
• Released second annual sustainability report and established an emissions intensity reduction target of 30 percent by 2025.
• Disciplined 2021 budget expected to generate $375 to $600 million of excess cash flow at US$50/bbl to US$60/bbl WTI.

Craig Bryksa, President and CEO of Crescent Point, said: "Our success over this past year highlights our resiliency, discipline and flexibility. As a result of the volatility in 2020, we acted swiftly, revising our capital program and operations, to enhance our financial flexibility and preserve the long-term value of our assets. Through our actions, over the last two years, we strengthened the Company and positioned ourselves to continue enhancing value for our stakeholders. Our recently announced acquisition of Kaybob Duvernay assets demonstrates this execution. These assets strengthen our expected free cash flow generation, leverage ratios and depth of high-quality inventory, within a transaction that is highly accretive on all financial metrics."

Financial Highlights:

• For the year ended December 31, 2020, the Company's adjusted funds flow totaled $874.4 million, or $1.64 per share diluted. In the fourth quarter, adjusted funds flow totaled $220.2 million, or $0.41 per share diluted.
• For the year ended December 31, 2020, Crescent Point's development capital expenditures, which included drilling and development, facilities and seismic, totaled $654.8 million, including $169.4 million spent during fourth quarter. As a result, the Company's 2020 development capital expenditures were below its most recent annual guidance of $665 million.
• As at December 31, 2020, Crescent Point's net debt was approximately $2.1 billion. Management successfully reduced the Company's net debt by over $615 million in 2020, including approximately $40 million in fourth quarter. Crescent Point's unutilized credit capacity is expected to total approximately $2.0 billion upon closing of the Acquisition in April 2021. The Company's credit facilities are not due for renewal until October 2023.
• As part of its risk management program to protect against commodity price volatility, the Company maintains an active hedging portfolio. Crescent Point will have approximately 30 percent of its oil and liquids production, net of royalty interest, hedged through the remainder of 2021 upon closing of the Acquisition. These hedges primarily consist of swaps with an average price of over CDN$60/bbl. Crescent Point plans to remain disciplined in its approach to layering on additional protection in the context of commodity prices.
• As previously announced, the Company recorded a non-cash asset impairment charge of $3.6 billion ($2.7 billion after-tax) in first quarter 2020, primarily due to a significant decrease in the independent engineering price forecast. This resulted in Crescent Point incurring a net loss of $2.5 billion for the year ended December 31, 2020. Neither the Company's adjusted funds flow, nor its credit capacity were impacted by this charge, which is reversible in future periods should there be indications of a change in value, including higher forecast commodity prices. Crescent Point's adjusted net earnings for the year ended December 31, 2020 were $177.4 million.
• Subsequent to the quarter, the Company declared a quarterly cash dividend of $0.0025 per share payable on April 1, 2021

Ops Highlights:

• Annual average production in 2020 was 121,642 boe/d, slightly above Crescent Point's production guidance of 121,000 boe/d. Average production during fourth quarter was 111,217 boe/d, reflecting the reduced capital budget announced earlier in the year.
• Throughout 2020, the Company continued to optimize its workflows and implement its operational technology ("OT") platform across its Saskatchewan asset base. As previously announced, through these initiatives, Crescent Point removed approximately $60 million in budgeted operating expenses in 2020. The Company plans to continue the rollout of its OT platform in 2021.
• At year-end 2020, the Company had successfully reduced its average per well capital costs by over 10 percent, in-line with its previously announced expectation. This improvement highlights the benefits of Crescent Point's significant operational experience, allowing for ongoing knowledge transfer and optimization within its asset portfolio. The Company's 2021 budget does not include additional efficiencies that it plans to seek throughout the year.
• As part of Crescent Point's decline mitigation program, the Company successfully converted over 130 producing wells to water injection wells in 2020. A similar level of conversions is planned for 2021. Crescent Point's base decline rate at the start of 2021 improved by approximately five percent, compared to the prior year, and is expected to remain unchanged on a pro-forma basis at approximately 25 percent. The Company's oil production currently under waterflood accounts for approximately 25 percent of its current total oil production, with a low decline rate of approximately five percent. Crescent Point plans to continue advancement of its waterflood program as only half of its currently planned injector conversions across its resource plays have been completed to-date. The Company also plans to pilot other enhanced oil recovery techniques to further enhance its long-term free cash flow generation and sustainability.
• As part of its continued commitment to strong environmental, social and governance ("ESG") practices, the Company has set an emissions intensity reduction target of 30 percent by 2025, relative to its 2017 baseline. This target includes a 50 percent reduction in methane emissions. Crescent Point is currently on track to meet these targets. The Company also continues to allocate capital towards reducing its asset retirement obligations ("ARO") to minimize its environmental footprint. Including funding expected to be received from government grants, Crescent Point plans to reduce its standing well count by approximately 10 percent in 2021. The recent Acquisition is expected to further enhance the Company's ESG profile, with minimal ARO and a low emissions intensity associated with the Kaybob Duvernay assets.

Reserves

"Our 2020 reserves highlight the continued improvements we have made to our cost structure, including lower future development capital and operating expenses, in addition to economic reserves additions through both our drilling and waterflood programs," said Bryksa. "As a result of lower commodity prices during first quarter 2020, we prudently revised our budget and allocated our remaining capital primarily to low-risk, high-return drilling locations. Given the majority of these wells were previously booked as undrilled locations, new reserves additions were not as meaningful as in prior years. Nonetheless, we positively impacted our net asset value in 2020 through our relentless focus on costs and debt reduction and through our disciplined disposition strategy. We look forward to developing the Kaybob Duvernay assets to further enhance shareholder value, including potential reserves additions given the significant undeveloped land included in the Acquisition."

• The Company's Proved plus Probable ("2P") net asset value ("NAV") was $8.53 per share at year-end 2020, based on independent engineering pricing, excluding land and seismic. This NAV forecast assumes an average WTI price of approximately US$51/bbl in the first five years. Excluding the changes in year-over-year pricing, the Company increased its 2P NAV per share by approximately 13 percent.
• Crescent Point's 2P reserves at year-end 2020 totaled 665.3 million boe ("MMboe"). The Company's Proved ("1P") and Proved Developed Producing ("PDP") reserves totaled 410.9 MMboe and 262.8 MMboe, respectively. Year-end 2020 reserves decreased in comparison to the prior year primarily due to economic factors, resulting from a lower independent engineering pricing forecast, which reduced 2P reserves by 35.2 MMboe, 1P reserves by 39.4 MMboe and PDP reserves by 19.3 MMboe.
• Crescent Point's 2P reserve life index ("RLI"), excluding the recently announced Acquisition, increased to approximately 16.6 years, up from approximately 14.3 years in the prior year.
• The Company's 2P reserves continued to benefit from its waterflood activities, which contributed approximately 4.9 MMboe of reserves additions in 2020. Approximately 30 percent, or 193.7 MMboe, of Crescent Point's 2P reserves were under the influence of secondary waterflood recovery at year-end 2020.
• The Company's 2P future development capital ("FDC") decreased by approximately $925 million, or 18 percent, primarily driven by a reduction in its per well capital costs and drilling of previously booked wells.

Additional information on the Company's 2020 reserves is provided in its Annual Information Form ("AIF") for the year-ended December 31, 2020. Crescent Point's 2P reserves from the Acquisition are 107.4 MMboe, which included only 36 booked locations in comparison to approximately 200 net internally identified locations.

Outlook

Crescent Point's 2020 results demonstrated management's resiliency, discipline and flexibility. Despite a challenging year for the industry, the Company successfully and meaningfully enhanced its balance sheet and sustainability.

Crescent Point expects to further enhance the business throughout 2021 through the continued rollout of its OT platform, ongoing drilling and completions optimization, decline mitigation programs and effective risk mitigation strategies.

In addition to the expected accretion from the Acquisition, management will also identify opportunities to further enhance returns by successfully integrating the Kaybob Duvernay assets and by seeking to deliver additional related cost efficiencies. Crescent Point has a proven track record of material success in realizing such efficiencies over the years, including in resource plays with comparable well costs and development programs, such as in North Dakota and its previously owned Uinta Basin asset.

The Company expects to generate significant excess cash flow in the current price environment, given its high-netback asset base, which is expected to further improve following the closing of the Acquisition. The Company is now expected to generate approximately $375 million to $600 million of excess cash flow in 2021, assuming an average WTI price of US$50/bbl to US$60/bbl for the year.

Management will remain disciplined in its allocation of excess cash flow, which will initially be directed to further net debt reduction, and will evaluate the return of additional capital to shareholders in the context of its capital allocation framework and leverage targets.