Veren Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 6 speakers on the call.

Operator

Morning, ladies and gentlemen. My name is John, and I will be your operator for Crescent Point Energy's Third Quarter 20 23 Conference Call. This conference call is being recorded today and will be webcast along with a slide deck, which can be found on Crescent Point's website homepage. The webcast may not be recorded or rebroadcast without the expressed consent of Crescent Point Energy. All amounts discussed today are in Canadian dollars, with the exception of West Texas Intermediate pricing, which is quoted in U.

Operator

S. Dollars. The complete financial statements and management's discussion and analysis for the period ending September 30, 2023 were announced this morning and are available on the Crescent Point, SEDAR Plus and EDGAR websites. All lines have been placed on mute to prevent any background noise. During the call, management may make projections or forward looking statements regarding future events or future financial performance.

Operator

Actual performance, events or results may differ materially. Additional information or factors that could affect Crescent Point's operation or financial results are included in Crescent Point's most recent annual information form, which may be accessed through the Crescent Point, SEDAR Plus and EDGAR websites or by contacting Crescent Point Energy. Management also calls your attention to the forward looking information and non GAAP measures secondtions of the press release issued earlier today. I will now turn the call over to Craig Brixa, President and Chief Executive Officer at Crescent Point. 20.

Operator

Please go ahead, Mr. Brixa.

Speaker 1

Thank you, operator. I'd like to welcome everyone to our Q3 2023 conference call. Nineteen. With me today are Ken Lamont, our Chief Financial Officer and Ryan Gritzfeldt, our Chief Operating Officer. As the operator highlighted, this conference call is being web along with the slide deck, which can be found on our website.

Speaker 1

We're continuing with our new conference call format to add a level of further engagement and to turn the call into more of a discussion. 18. Earlier today, we issued our quarterly press release, financial results and an updated corporate presentation, each of which can be found on our website. During this call, I'll provide a brief strategy update, highlight our results and discuss our overall outlook. We'll then move into a Q and A session.

Speaker 1

2019. We will start by taking questions over the conference line as we usually do. Once those questions have concluded, I'll then turn the call over to Shant Madian, our Vice President of Capital Markets, on our portfolio optimization strategy. Our recent acquisition in the Alberta Montney has generated strong returns for the company and we have been impressed with the operational results achieved to date, which I will speak to shortly. We've also been active on the disposition side 2019.

Speaker 1

Actions are consistent with our strategy to focus our portfolio on high return, high netback short and long cycle plays. This balanced portfolio allows us to deliver sustainable long term returns for our shareholders through a combination of discipline per share growth, a significant return of capital and our balance sheet strength. I want to spend a few minutes touching on our Alberta Montney as we are very excited about this addition to our portfolio and our results to date. From a strategic perspective, the Alberta Montney provides a deep drilling inventory, positioning within the volatile oil window, consistent geology with significant resource in place and the opportunity to enhance returns through drilling and completions optimization. Since entering the play, we continue to achieve consistent and repeatable results that are in line or ahead of our expectations, including some of the highest productivity wells in the entire Western Canadian Sedimentary Basin.

Speaker 1

At Gold Creek West, for example, our most recent pad brought on stream achieved peak 30 day rates of 1200 BOE per day per well with a high liquids weighting of nearly 70%. In addition to these results, we are also making progress on reducing costs and are evaluating opportunities to develop certain areas of the play at tighter spacing that would provide additional drilling inventory. We are currently running a 1 rig program in the Montney, but we'll be evaluating eventually looking to add a second rig to further accelerate the high return development of our deep inventory in the play. Altogether, the addition of these Montney assets has significantly enhanced which has been a major part of our outproduction in 2023. If you recall, when we adjusted our 2023 production guidance to reflect recent North Dakota disposition, our outperformance largely driven from the Kaybob Duvernay allowed us to partially offset the volumes that were sold.

Speaker 1

Our latest KaBOB pad, which came on stream during the Q3 was ahead of our tight well forecast with peak 30 day rates of approximately 1500 buoy per day per well comprised of over 80% liquids. What's notable from these results is that eighteen. These results also highlight the benefits of our optimized well design and completion techniques. Our Kaybob Duvernay and Alberta Montney 2019. We are pleased to announce that our growth in the year ended December 31, 2018, and we are pleased to announce that our growth in the year ahead.

Speaker 1

Within our longer cycle operations, we are generating strong netbacks and excess cash flow as we progress our decline mitigation programs to 2018 to enhance ultimate recoveries from our large oil in place pools. Our waterflood and polymerflood operations continue to support strong oil production within our with strong results to date in the Viewfield Bauca. We recently improved the design of these wells to extend our laterals to enhance production and reduce costs drilling efficiencies. Our latest wells using this approach consist of approximately 2 mile laterals across 8 legs, which significantly increases reservoir contact and oil production. We recently achieved peak 30 day well results of over 300 barrels per day from our most recent 2 wells with 100% oil weighting and very attractive economics.

Speaker 1

Nineteen. We're excited about this innovation as it has enhanced our overall returns and added new premium locations to our drilling inventory. We look forward to piloting this approach in other areas within our Saskatchewan assets. Looking ahead, we couldn't be more excited about our outlook. 20.

Speaker 1

Our preliminary 2024 budget forecast production guidance of 145,000 Boe per day and excess cash flow generation of approximately $1,000,000,000 at $80 per barrel WTI price. Further out, our 5 year plan forecast production growing to 180,000 BOE per day by 2028, representing a 5% compounded annual growth rate, driven by strong production growth from our Montney and Kaybob assets. This growth is balanced by our low decline production in Saskatchewan, which allows us to maintain consistent decline rate throughout our plan to further enhance our excess cash flow generation. In total, we expect to generate over $4,300,000,000 of cumulative after tax excess cash flow through 2028 at $75 per barrel WTI pricing, 60% of which is earmarked to be returned directly to our shareholders. Eighteen.

Speaker 1

I'd like to thank everyone for their continued support and engagement, in particular our staff who continue to deliver on our purpose of bringing energy to our world the right way. We'll now open the call to questions from the analyst community and follow with a Q and A session for those on the webcast. Operator, please open the call.

Operator

2. Please ensure you lift the handset that you're using a speakerphone before pressing any keys. Your first question comes from the line of Amir tariff from ATB Capital. Your line is now open.

Speaker 2

Thanks. Good morning, guys. Craig, just a few quick operational questions for you. Just in the Duvernay, could you give us some color on that new pad that you referenced in the northern part of your acreage at the volatile oil window? And I think you'd mentioned there was strong initial results.

Speaker 2

I'm taking you don't have 30 day rates yet.

Speaker 1

Yes. So we've got we brought 2 pads on in the quarter, Amir. That one that we mentioned in the press release is that FC806 pad that came on at around 1500 BOE per day per well at just about 80% liquid. So a very good pad for us. And then we've got a pad in the northern part that Coming through flow back in the Q2 and has just been brought online here now.

Speaker 1

It looks very encouraging. It looks really good. It's just We don't have an IP30 on that one yet. So as we get more well results and more time on production look for us to then bring those But again, very encouraged by both those two pads here over the last quarter. And then the one thing I would add to, Amir, is One of the things that we really love about the Duvernay since we've been in there is just how consistent and repeatable these results have been.

Speaker 1

And as you combine that with what Brian's team in the operations front have been doing with our cost structure, and then the repeatability and the Predictability of the ultimate well results, it's really starting to drive some very, very, very compelling returns. So exciting for us and Note to Amir that rig 2 is now operating in the play for us as well too now. So going forward with 2 fold drilling rigs.

Operator

Next question comes from the line of Travis Wood from National Bank Financial. Your line is now open.

Speaker 3

Thanks for taking my question. I wanted to touch on tax. A lot of your peers have shifted over to be taxable cash taxable here through last year and this year. How does cash tax look for you guys going forward on kind of current pricing. I know I think the presentation kind of highlights 5% to 10% plus or minus Next year, but is there a scenario that or sorry, in 2025, but is there a scenario that would

Speaker 1

Travis, thanks for the question. I'll pass that over to Ken. Hey, Travis. Yes, so

Speaker 4

I guess for the first part of your question, As we sit on the strip pricing right now, we will be paying 0 taxes in 2024 and then that will be taxable at an effective rate of about 6% in 2025. And that's percent in 2025 and that's relative to cash flow. So we don't see taxes at strip Until 2025 and that'll be at 6%. Now the second part of your question, do I see a scenario? I do have a model run that if we hit kind of in that 5% range.

Speaker 4

So that would be the sensitivity there. We'd need to see $100 oil here flat.

Speaker 3

Okay. Thanks, Ken. That's perfect color on that. 0 next year, high probability of 0 and then a modest 6% into 2025. One more question, just I guess operationally and not related to the Duvernay or the Montney, but given a lot of open hole, multi lat acceleration in some older well vertically delineated plays.

Speaker 3

How many wells are you thinking that you would drill across Viewfield with that multi lat strategy on those open holes that you announced with the quarter. And then with those 2 wells, does that make 4 total since you kind of first started talking about that open hole pushing the boundaries at the U.

Speaker 1

Hey, Travis, it's Ryan. I can

Speaker 5

take that one. Yes, so really encouraged with those two most recent results. We've actually done 8 to date now. Those range from 1 milers, 1.5 milers, 2 milers, these last couple, the good thing about them too is we've gotten our 2 mile cost down to under $3,000,000 So, continue to increase the economics on those. And based on that, we have 8 planned in Viewfields next year.

Speaker 5

And then we also spud our first one in our Seanan play here. So Probably won't have results before the end of the year on that Shaunavon well, but pretty excited to see what we'll get there. All of our various reservoir simulations we ran there. We're kind of doing the same design, 8 legs, 50 meter spacing. So Really looking forward to see what we can get in our Shaunavon play.

Speaker 3

Okay. And is the right way to think about this part of the operational strategy. Is it more so related to capturing, especially at Viewfields, improving the recovery and or is it pushing the boundaries of the play and capturing some maybe some more growth opportunity or is it more about the original oil in place?

Speaker 5

Yes, I'd say both, Travis. So The first the reason that we started trying this was in some parts of the play where it's a little bit thinner, but more porous, more permeable. It also had the wet lodgepole above. So fracking, we ended up fracking into that wet lodgepole and bringing in water. So now with the results we're seeing, to your point on, is it just capturing more resource or is it economics, it's both.

Speaker 5

You're essentially getting, in our view, almost double the EUR at a little bit less capital. Obviously, your economics look a lot better than doing it with the with our older style, 8 wells per section and fracking. So, yes, hopefully that answers your question there. And like I said, we'll continue to drill. We have 8 wells plans for next year.

Speaker 5

And yes, I don't think this is something that will add rigs to get to. I think it just helps Continue to keep our Saskatchewan production and that decline rate manageable and adds to years of drilling inventory versus adding rigs to get after it. So that's our current plan right now with the results we're seeing.

Speaker 1

Thanks, Travis.

Operator

There are no further questions at this time at the phone line. I will now hand over to Mr. Craig Brixa. Please continue.

Speaker 1

John, do you want to moderate from the webcast?

Speaker 2

Yes. Thanks, Craig. So a couple of questions coming from the online portion. 1st is based on success we've been having on the Montney well results. 1 of the shareholders was just asking if we can provide a little bit more color on our modified well design or frac technology that using in the Montney, I guess specifically around those elevator fracs.

Speaker 1

I can give a little bit of color and then Ryan can add some comments. So Mainly happy with how the operations have been going here in the Montney over the last few months since we closed that deal. As far as operations go, we're on currently on our 4th pad of drilling and drilling has been going very well. One of the things when you look at our position within the Montney from a geological aspect is we're in the normal pressured window within the play. We're in the volatile oil window and we're on the normal pressure position within that play.

Speaker 1

And then when you look across the benches from the Montney C, the B and the A into the A, There's no real change in the pressure gradient between those different benches. So really what that's telling you is there's no real natural fracture barriers between The bench is within the place. So, what we've been doing is drilling the wells at the bottom of the sea and then hitting them with a very modern completion modern frac, call it 3 tons per meter. And then because that pressure gradient doesn't change on us and no natural frac barriers in there, it allows us to fracture through the C, the B and into the A. So you get very good vertical height growth within the completion.

Speaker 1

You don't get as much Horizontal growth or half length growth, but certainly get a lot of vertical growth and that has led to some very, very encouraging results here in the near term. So look for us to continue to push this as we continue to develop it. But so far, so good. And then the other thing with this is, 19. As we space the wells in particular in Gold Creek West, because of the vertical height growth and maybe not as much of the half length, it may allow us to tighten up that spacing a little bit tighter, which would ultimately add to well inventory, but we'll slowly dip our toes into that as we see results that dictate.

Speaker 1

Ryan, I don't know if you had.

Speaker 5

Yes. I'll actually maybe add even on the cost side, like Craig said, What's key is we're getting consistent repeatable results and on budget. And An exciting thing for us, we've switched over our rig in the Montney to another rig. It's a walking double rig, has lots of advantages, large pumps, higher hook loads, etcetera, etcetera. And we think with We're going to be able to shave a day or 2 off of our drilling days and continue to decrease our costs.

Speaker 5

Excited to do that as well.

Speaker 2

Great. Thanks guys. Shifting to K Bob a bit and on that topic of wall spacing. One question here specifically, how do we think about infill spacing here versus the prior operator, typically either By phase windows or how we've approached it since entering the play?

Speaker 1

I can start and Ryan can add some color. So when you think of when we entered the play in 2021, we had our well spaced fairly wide at 600 meters. When you look at maybe some of the other operators in the area or even the previous operator that we picked the asset up from, They did space wells fairly tight and creep in fairly tight and we could see that from a lot of that there is some inter well interference and that's why we took that wider stance. Over the last basically 12 to 18 months, we've slowly been creeping in. So you've seen us move in particular in the volatile oil window into that from 600 meters into 500 meters.

Speaker 1

And we'll see how things play out on that. Results are very encouraging. And even that last pad I just mentioned that FC806 pad 1500 BOE per day is spaced at that level. So look for us to maybe slowly tighten this in a little bit more and see how they get. And then the other thing I would say in each of the different phase envelopes, there's fairly different pressure regimes as well.

Speaker 1

So the spacing might be different between each of those and that's reflected in how we've been drilling. But the idea is to slowly creep in, make sure we're comfortable And then start to optimize. So things on that front have been really looking good. And Ryan, I don't know if you want to? Yes.

Speaker 5

I don't think I have much to add to that other than like Craig said, it definitely where you want them to play. We have very rigorous detailed reservoir models that we continue to update with the results that we're getting. And so far we like what we're seeing with our current spacing plans.

Speaker 2

Thanks guys. A follow-up to that specifically on Kaibab as well. Any plans to develop on the Western side within the volatile oil section?

Speaker 1

So when you look at our 2024 budget, again, very active 2 rig drilling program. And certainly, we are looking to get a pad on the western side there, the volatile oil window. We're going to do that this year in 2024 and then we'll see how that ends up playing out. One thing that does give us comfort on our land position in there is some of the offsetting competitor wells that have really proven up that land position for us. So you'll see us get a pad in there this year.

Speaker 1

And as we get those results online, then we'll certainly put those into the market, but encouraged by everything that we're seeing.

Speaker 5

Yes. Sorry, I had to get my direction straight there. I mean, yes, 2024 our 2024 kFOB hibernate drilling program is Quite exciting. Like Craig said, we're stepping out to the west. We're actually we actually spudded a well to the southeast here recently and we'll have production rates early next year.

Speaker 5

So yes, really looking to see what these results can do to expand our drilling inventory and

Speaker 2

I appreciate it guys. At this time, there are no additional questions from those online. So we want to thank everyone for joining our call today. And

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Key Takeaways

  • Alberta Montney Acquisition and Results: Crescent Point's newly acquired Alberta Montney assets are delivering some of the Western Canadian Sedimentary Basin's highest productivity wells, with Gold Creek West wells achieving 1,200 BOE/d (70% liquids) in peak 30-day rates, and the company plans to add a second rig to accelerate development.
  • Kaybob Duvernay Outperformance: The latest Kaybob pad outpaced forecasts with peak 30-day rates of ~1,500 BOE/d per well (over 80% liquids), underscoring benefits from optimized well design and completion techniques and supporting a two-rig drilling program.
  • Enhanced Saskatchewan Operations: Long-cycle waterflood and polymer flood initiatives in Saskatchewan, featuring two-mile laterals with eight legs, have yielded peak 30-day oil rates above 300 bbl/d per well, boosting economic returns and drilling inventory.
  • 2024–2028 Growth Outlook: Crescent Point forecasts 2024 production of 145,000 BOE/d and C$1 billion excess cash flow at US$80 WTI, with a five-year plan to grow to 180,000 BOE/d by 2028 (5% CAGR), generating C$4.3 billion of after-tax excess cash flow (60% to be returned to shareholders).
  • Tax Guidance: Management expects to pay zero cash taxes in 2024 and a modest 6% effective cash tax rate in 2025 based on current strip pricing, with tax payments beginning if WTI averages US$100/bbl flat.
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Earnings Conference Call
Veren Q3 2023
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