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Crescent Point Energy Fourth Quarter, Full Year 2021 Results

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   |    Friday,March 04,2022

Crescent Point Energy Corp. reported its operating and financial results for the year ended December 31, 2021 and increased share repurchases.

Key Highlights:

• Generated over $785 million of excess cash flow in 2021 with capital expenditures and production in-line with annual guidance.
   
• Increased PDP reserves by 17 percent with a strong FD&A recycle ratio of 2.7 times, including change in FDC.
   
• Replaced 197 percent of 2021 production on a 2P basis, resulting in a FD&A recycle ratio of 2.2 times, including change in FDC.
   
• Improved full-cycle returns in the Kaybob Duvernay through additional well cost reductions now totaling 20 percent.
   
• Achieved strong IP rate of over 825 boe/d per well, based on approximately 30 days, on first fully operated Kaybob Duvernay pad.
   
• Fully repaid $670 million of debt to acquire the Kaybob Duvernay assets, in addition to reducing net debt by $144 million in 2021.
   
• Disciplined 2022 budget, which is expected to generate approximately $1.1 billion of excess cash flow at US$80/bbl WTI.
   
• Increasing planned share repurchases to up to $150 million, to be executed by mid-2022, from $100 million announced previously.
   
• On track to meet or exceed targets to reduce emissions intensity and inactive wells, highlighting strong ESG practices.

Craig Bryksa, President and CEO of Crescent Point, said: "Our discipline and execution over the past few years positioned us to not only capitalize on strategic opportunities during 2021, but also to begin returning additional capital to shareholders. We are very pleased with our initial success in the Kaybob Duvernay, including our strong operational execution that has resulted in increased rates of return. Due to our continued discipline and focus, we are on track to achieve our near-term leverage targets over the next six months at current commodity prices. As we continue to strengthen our balance sheet we will look to provide increased returns to shareholders in the context of a more defined return of capital framework." 

Financial Highlights:

• For the year ended December 31, 2021, adjusted funds flow totaled $1.48 billion, or $2.57 per share diluted, driven by a strong operating netback of $42.43 per boe. In fourth quarter, adjusted funds flow totaled $432.5 million, or $0.74 per share diluted.
   
• For the year ended December 31, 2021, development capital expenditures, which included drilling and development, facilities and seismic costs, totaled $624.2 million, in-line with the Company's annual guidance of $625 million.
   
• Crescent Point's net debt as at December 31, 2021 was approximately $2.0 billion. The Company fully repaid approximately $670 million of debt incurred to acquire the Kaybob Duvernay assets, in addition to reducing its net debt by $144 million in 2021. In total, approximately $815 million of funds were directed to the balance sheet in 2021, including proceeds from dispositions.
   
• As previously announced, Crescent Point successfully renewed and extended its unsecured, covenant-based credit facilities of $2.3 billion with a maturity date of November 2025. The Company retains significant liquidity with an unutilized credit capacity of approximately $2.0 billion as at December 31, 2021.
   
• For the year ended December 31, 2021, Crescent Point reported net income of approximately $2.4 billion, primarily driven by a $2.5 billion ($1.9 billion after-tax) reversal of non-cash impairment in second quarter due to an increase in forward commodity prices and the independent engineers' price forecast. In fourth quarter, net income totaled $121.6 million.

RETURN OF CAPITAL HIGHLIGHTS

• As previously announced, the Company's Board of Directors ("Board") approved and declared a first quarter 2022 dividend of $0.045 per share, payable on April 1, 2022 to shareholders of record on March 15, 2022. This equates to an annualized dividend of $0.18 per share, an increase of 50 percent from the prior level.
   
• The Board has approved the return of additional capital to shareholders given the continued strength in commodity prices and Crescent Point's improving financial position. The Company is increasing its total planned share repurchases to up to $150 million, which it expects to execute by mid-2022, from $100 million announced previously. These planned repurchases were initiated in December 2021 with approximately 8.1 million shares repurchased and cancelled to-date for total consideration of approximately $60 million. Crescent Point has filed notice with the Toronto Stock Exchange ("TSX") of the intention to renew its normal course issuer bid ("NCIB"), which is due to expire on March 8, 2022.

 Operational Highlights:

• Achieved annual average production of 132,683 boe/d in 2021, comprised of over 80 percent oil and liquids, and in-line with the previously increased annual guidance.
   
• The Company continues to gain operational momentum in its Kaybob Duvernay play, realizing ongoing operational efficiencies and cost reductions. Recent well costs are trending at approximately $8.25 million, including drilling, completion, equip and tie-in, down from $8.75 million previously announced. Crescent Point has now removed approximately $2.0 million of per well costs, or approximately 20 percent, since entering the play in second quarter 2021. These savings have improved expected full-cycle rates of return and provide additional insulation to the Company's capital budget in the current inflationary environment.
   
• Crescent Point's Kaybob Duvernay wells are expected to generate full-cycle rates of return of over 120 percent and a payout of less than a year, at current commodity prices and budgeted cost inflation assumptions. These economics are based on an average of booked Proved plus Probable ("2P") reserves per well within the Company's current drilling program. These returns exclude any potential improvements to recoverable reserves resulting from Crescent Point utilizing a larger frac design than the prior operator. The Company will seek to further enhance returns in the play through ongoing drilling and completions optimization.
   
• Crescent Point recently brought onstream its first fully operated five-well pad in the Kaybob Duvernay, with approximately 30 days of production data now available. Initial production ("IP") rates from these wells exceeded the 2P booked type well expectations, with an average IP rate of over 825 boe/d per well (74% condensate, 6% NGL and 20% shale gas). Crescent Point also completed and brought on production two multi-well pads, with a 50 percent working interest, as part of its previously announced farm-in agreement with a Kaybob Duvernay operator. The combined 30-day IP rate, net to the Company, for these three pads totaled over 11,000 boe/d (51% condensate, 9% NGL and 40% shale gas). This data includes a normal clean-up period for each well where pressure is maintained and production rates are moderated.
   
• Crescent Point continued to enhance returns by realizing efficiencies across its asset base in 2021, including reducing its drilling days within its Viewfield, Shaunavon and North Dakota resource plays by 10 to 15 percent. Such improvements provide the Company with sustainable cost efficiencies and further highlight its commitment to ongoing operational execution.
   
• The Company continued to advance its various decline mitigation initiatives in 2021, which included the successful conversion of approximately 135 producing wells to water injection wells. Crescent Point expects to execute a similar waterflood program in 2022. The Company also continues to progress its other decline mitigation programs, including the expansion of its polymer floods and pilot program to test carbon dioxide (CO₂) sequestration and enhanced oil recovery in Saskatchewan.
   
• As part of its continued commitment to strong environmental, social and governance ("ESG") practices, Crescent Point increased its target for emissions intensity reduction to 50 percent, up from 30 percent, by 2025, as previously announced. This target includes a 70 percent reduction in methane emissions. The Company is on track to meet or exceed its existing targets ahead of schedule and plans to revisit its current emissions reduction goals in second quarter 2022 in coordination with the release of its annual sustainability report. Crescent Point also made progress toward its target to reduce its inactive well count by approximately 30 percent by 2031 by safely retiring over 500 inactive wells during the year. The Company plans to retire approximately 350 additional wells in 2022.

Reserves

"Our 2021 reserves and strong recycle ratios benefited from the addition of the Kaybob Duvernay asset, high-return development and improved recoveries from our decline mitigation programs," said Bryksa. "As a result, our proved developed producing net asset value increased by approximately 15 percent on a per share basis, excluding year-over-year changes in pricing. We remain encouraged about the Kaybob Duvernay assets and the opportunity we have to further enhance shareholder value by achieving additional cost efficiencies, improving well productivity and adding reserves."   

• Crescent Point's 2P reserves increased by seven percent at year-end 2021 to 712.4 million boe ("MMboe"), Proved ("1P") reserves by 16 percent to 478.4 MMboe and Proved Developed Producing ("PDP") reserves by 17 percent to 306.4 MMboe.
   
• On a 2P basis, the Company achieved reserve additions of 95.5 MMboe, replacing 197 percent of its 2021 production. Crescent Point benefited from the strategic Kaybob Duvernay acquisition, organic reserves additions, improved recovery factors associated with its decline mitigation programs and economic factors due to higher pricing. The Company's 2P reserve life index ("RLI") is approximately 15 years.
   
• Crescent Point generated 2P finding, development and acquisition ("FD&A") costs, including change in future development capital ("FDC"), of $19.68 per boe, producing a recycle ratio of 2.2 times based on an operating netback of $42.43 per boe in 2021.
   
• On a PDP basis, the Company generated finding and development ("F&D") costs, including change in FDC, of $12.22 per boe, producing a recycle ratio of 3.5 times. Crescent Point's PDP FD&A costs, including change in FDC, totaled $15.93 per boe, resulting in a recycle ratio of 2.7 times.
   
• Crescent Point's 2P and 1P net asset value ("NAV") was $16.56 and $11.18 per share, respectively, at year-end 2021, based on independent engineering pricing. On a PDP basis, NAV was $7.62 per share and increased by approximately 15 percent compared to the prior year, adjusting for year-over-year changes in pricing and excluding land and seismic. This NAV forecast assumes an average WTI price of approximately US$69/bbl in the first five years.
   
• Crescent Point's 2P FDC increased by approximately $400 million, or 10 percent, to $4.6 billion primarily driven by location additions from its Kaybob Duvernay play. This FDC equates to a conservative program that is also aligned with the Company's current level of capital spending and five year plan.

In contrast to the prior year, Crescent Point elected to use a single independent evaluator to determine its 2021 corporate reserves, providing consistency across the evaluation process. Certain reserves metrics, including F&D costs, FD&A costs and recycle ratios, may not be meaningful or comparable year-over-year given significant portfolio changes executed over the last three years. Additional information on the Company's 2021 reserves is provided in its Annual Information Form ("AIF") for the year-ended December 31, 2021.

Outlook

Crescent Point's strong 2021 results highlight the continued success of its operational, financial and strategic execution.

The Company is on track to meet its 2022 average production guidance of 133,000 to 137,000 boe/d within its development capital expenditures budget of $825 to $900 million. This budget remains unchanged, despite a stronger commodity price environment, as management remains disciplined and focused on generating significant excess cash flow to create shareholder value. Crescent Point's capital expenditures guidance also remains unchanged, despite continued cost inflation pressures, due to the Company's ongoing efforts to realize internal efficiencies and its supply chain management. Assuming US$80/bbl WTI for the remainder of the year, Crescent Point's budget is expected to generate approximately $1.1 billion of excess cash flow in 2022.

The Company continues to prioritize its balance sheet as it moves closer to achieving its near-term leverage target of approximately 1.0 times net debt to adjusted funds flow at US$55/bbl WTI, or approximately $1.3 to $1.4 billion of absolute net debt. At current commodity prices, Crescent Point expects to achieve this near-term debt target over the next six months.

The Company will look to provide increased returns to shareholders and a more defined return of capital framework as the balance sheet continues to strengthen. Based on Crescent Point's continued successes and improving outlook, the Company is increasing its total planned share repurchases to up to $150 million, which it expects to execute by mid-2022, from $100 million announced previously.

Crescent Point is committed to a model that returns capital to shareholders while also generating additional returns through debt-adjusted per share growth.