Veren Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2023

There are 7 speakers on the call.

Operator

Morning, ladies and gentlemen. My name is Julie, and I will be your operator for Crescent Point Energy's Second Quarter 2023 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 and Terminate, or WTI, pricing, which is quoted in U.

Operator

US dollars. The complete financial statements and management's discussions and analysis for the period ending June 30, 2023 were announced this morning and are available on the Crescent Point, SEDAR and EDGAR websites. During the call, management may make actions or other forward looking statements regarding future events or future financial performance. Actual performance, events or results results are included in Crescent Point's most sent additional information form, which may be accessed through the Crescent Point, Cedar or EDGAR websites or by contacting Crescent Point Energy. Management also calls your attention to their forward looking information in the non GAAP measures sections of the press release Q2 earlier today.

Operator

I will now turn the call over to Craig Briskott, President and Chief Executive Officer at Crescent Point. Please go ahead, Mr. To Brixa.

Speaker 1

Thank you, operator. I'd like to welcome everyone to our Q2 2023 conference call. 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 webcast Along with the slide deck, which can be found on our website. Today, we're introducing a new format to our conference call to add a level of further engagement and to turn the call into more of a discussion on our forward outlook.

Speaker 1

Earlier today, we issued our quarterly press release, financial results and updated corporate presentation, 2018, each of which can be found on our website. During this call, I'll provide a brief strategy update, highlight our strong quarterly results and discuss our overall outlook for the remainder of the year. We'll then move into a Q and A session. We will start by taking questions over the conference line as we usually do. And once those questions have concluded, I'll then turn the call over to Sean Madian, our Vice President of Capital Markets, who will moderate questions from participants joining us on our webcast.

Speaker 1

We encourage those in our webcast to submit questions using the chat function on the online portal. We look forward to the discussion that this format will provide. So let's get started. On the strategy front, we significantly advanced our portfolio optimization through our successful Alberta Montney acquisition during the This transaction materially enhances the quality of our portfolio both in terms of our depth of premium inventory as well as our excess cash flow profile and a return of capital per share. This acquisition is consistent with our strategy of pairing quick payback, 2nd quarter.

Speaker 1

Short cycle assets such as the Alberta Montney and Kaybob Duvernay with our longer cycle low decline assets in Saskatchewan. This mix of short and long cycle plays results in significant excess cash flow for the company and our shareholders. It also allows us to execute on our strategy to generate sustainable long term returns through a combination of per share growth and a compelling return of capital offering, 2nd quarter, all while maintaining a strong balance sheet. Our multi basin approach remains strategically focused on oil and liquids, which account for 75% of our current production. By remaining dedicated to this approach, we are able to deliver on one of the highest cash flow netbacks in the industry 2nd quarter, along with significant excess cash flow per share.

Speaker 1

We are successfully integrating the New Montney asset into our portfolio and have a near term goal Further enhancing our returns through additional productivity gains and cost efficiencies. Part of our early success in this play has been the result of our efforts to leverage our existing relationships with our suppliers to reduce our costs. We have also identified additional areas for potential efficiencies including Ongoing well completion optimization, deploying longer lateral lengths and shifting to larger multi well pads. As you can tell, we're excited about our new Alberta Montney position, especially given its recent prolific well results. For example, 4 of the top 5 liquids wells drilled in the Western Canadian Sedimentary Basin in May were our wells in the Montney, highlighting the attractive reservoir characteristics and the scalability of this asset.

Speaker 1

We have continued our drilling success into June, achieving impressive results that are in line with or exceeding our early well results. Like the Kaybob Duvernay, our Montney play provides the opportunity for new reserve additions and ultimately net asset value per share growth. Given that only 25% of the locations we have internally identified have been booked. This transaction Along with our strategic steps we have taken over the past few years has allowed us to build a very strong profile or portfolio that is well positioned to generate long term returns for our shareholders. I'll now shift to our quarterly results and the execution across our portfolio.

Speaker 1

During the past quarter, we continued to demonstrate our operational excellence as reflected in strong performance of our KaBOB Duvernay assets. I'd note that our Q2 production of 155,000 BOE per day included the impact of approximately 7,000 BOE per day of downtime associated with the wildfires. First off, I'd like to commend our teams in the field and thank our local community members and first responders for their incredible efforts to keep everyone safe during the wildfires. Furthermore, thanks to our dedicated teams and advanced field operation technology, We were able to quickly restore our KaBOB Duvernay volumes as the fire subsided. These wildfires masked our true outperformance in the quarter, which was driven by our KaBOB Duvernay assets with recent on stream production outpacing our type wells in the area.

Speaker 1

Due to this outperformance in the first half of the year, we have kept Our annual production and capital expenditures guidance unchanged. Our second quarter results also demonstrate our commitment to returning capital. During the quarter, we returned $167,000,000 or approximately 60% of our excess cash flow directly to our shareholders. This included $93,000,000 of share repurchases in addition to our dividends. In total, we have now repurchased for cancellation nearly 17,000,000 shares year to date and remain active on our buyback program, which is the tool of choice within our return of capital framework.

Speaker 1

Over the past 12 months, we have delivered more than $550,000,000 to shareholders, marking our 4th consecutive quarter of returning approximately 60% of our excess cash flow. I'll now touch on our outlook for the remainder of 2023 along with our 5 year plan. During the second half of this year, we expect to realize the benefits of our recent Montney acquisition and continued momentum in our Kaybop Duvernay play, 2019 as we plan to bring on stream additional pads in both areas during the 3rd Q4. Our second half 2020 production is expected to average approximately 179,000 BOE per day generating over $1,000,000,000 of excess cash flow on an annualized basis, assuming a US75 dollars price deck. As we look further out, we expect to generate US5 $1,000,000,000 A cumulative excess cash flow under our 5 year plan at similar commodity price assumptions, providing a combination of disciplined per share growth, attractive return of capital and further debt reduction.

Speaker 1

We plan to provide our preliminary 2024 outlook later this fall alongside an updated 5 year plan. Lastly, on the ESG front, we remain steadfast in our commitment to strong environmental, social and governance practices. During the quarter, we released our 5th annual sustainability report highlighting our strong ESG performance and detailing our key ESG initiatives. I'm proud to report that our environmental initiatives over the past 5 years have resulted in a reduction of approximately 50% in both our Scope 1 emissions intensity and our asset retirement obligations. We also continue to achieve record safety scores, Which speaks to our safety first culture.

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 2nd quarter. We'll now open the call for questions from the analysts and follow with the Q and A session for those on our webcast. Operator, please open the call.

Operator

Thank you. Your first question comes from Dennis Fong from CIBC World Markets. Please go ahead.

Speaker 2

The solid quarter and thanks for taking my question. The first one that I have is just related to Montney. There's a lot of discussion around Gold Creek East and West. I was just curious as to some of the potential development plans around Carr, Just given also attractive economics in that region or is there any kind of, I don't call it hindrance, but Things that you need to complete before further developing that region.

Speaker 3

Yes. This is Ryan here. I'll take that one. So yes, Carr, obviously, It's an area that we really like. It's obviously a little bit more higher oil percent, higher liquids percent than Gold Creek.

Speaker 3

Not as many future drilling locations there as in Gold Creek, but we do like the area. We We finished drilling a pad there when we took over from Spartan and actually right now fracking a pad there, which we should have results to disclose next quarter. But yes, we are drilling there for the rest of this year into 2024. And of course, we'll continue as we get locations ready. But yes, we just haven't talked about KAR yet, Because we don't have any results since the close of the acquisition, but we are fracking a pad there as we speak and we'll speak to that next

Speaker 2

quarter. Great, great. Thanks. And my follow-up sorry, my follow-up here is Also on the Montney here, you've obviously talked a lot about optimizing both cost structure and even completion design now that you've taken over The property, what would maybe drive a decision and or timing to add a second rig in the Montney? And kind of what are you looking for to help drive the confidence around accelerating capital deployment into that region.

Speaker 2

Thanks.

Speaker 1

Hey, Dennis, it's Craig here. Thanks for the question. So obviously very excited with the results we've been seeing to date and bringing that acquisition now and having it in house And our technical team has really been able to spend the time and dig into it. So the more we get in there and the more we work through it, the more excited we get about this. And you can see that as the results are coming out, here over through May and into June and what we were putting here into our quarter.

Speaker 1

So on all fronts, it looks really good. I think as the technical team gets into it, We'll do things a little bit differently like we did in the Duvernay. If you remember, when we picked that up, we moved in there with purpose. We got smarter over, call it, 2nd quarter. 1st couple of years of owning that asset and now are moving into the second rig into the Duvernay here in October of this year.

Speaker 1

So look for us here to do it in a similar fashion, Dennis. We're going to spend some time. We're going to get active in there. We're going to do what we think is right as far as landing the wells in the landing zone of our preference. We're going to change up some completion design ultimately really maximize some height growth within there.

Speaker 1

And then ultimately that should show through in the results. So as we think through our 2024 program, Right now, it's sitting at 1 rig in the Montney. But if there is capital shifts across the portfolio, I would expect That to be moving into the Montney and maybe out of other areas, but I wouldn't expect anything over Within the next 12 months, Dennis. So right now, it's a 1 rig plan here. We'll see how things play out as we get smarter and really test what we want to do.

Speaker 1

And Again, this is where I get excited about it, Dennis, is because you think of our technical teams within this organization and what they're going to what they were able to unlock in the Duvernay and now parlay that into the Montney. I guess that's a long winded way of me saying that nothing here incremental in the next 12 months, but over that When we get beyond that, we're a little bit smarter to look for us to start shifting some capital.

Speaker 2

Great, great. Thanks and appreciate the color there, Craig. I'll turn it back.

Speaker 1

Yes. Okay. Thanks, Dennis.

Operator

We have time for one more question coming from Travis Wood from National Bank Financial. Please go ahead.

Speaker 4

Yes, thanks and good morning. I wanted to talk about divestitures and with a few things in the fire and just assuming that something closes Across the portfolio here over the next several months, how are you thinking about the allocation of those proceeds, maybe just from a debt Variable special and base dividend perspective. But then also, how are you as you look at opportunities and kind of future business Opportunities and you evaluate those, how are you ranking those future opportunities from a to conventional oil or oil sands liquids rich perspective as you look at future inventory expansion from an M and A perspective?

Speaker 1

Thanks, Travis. So it's Craig. I'll take this one. And if Ken and Ryan or Sean want to add any color, feel free gents. But So, Travis, obviously a lot of work in the last 5 years of what we've been doing as far as building out our portfolio.

Speaker 1

I can tell you How we sit today, we are extremely excited about what we have, especially when you think of the short cycle and the long cycle pairing like we've talked about quite a bit in the past. Really 2 premium North American unconventional resource plays paired with our Saskatchewan waterflood assets. So really love the balance in the portfolio. We love The weighting that we have in the portfolio, particularly when you think of us at around 75% liquids. And at the same time, now on the back end of This transformation, we have a premium inventory of 15 years.

Speaker 1

So we're sitting in a really good spot and feel really good about it. Your question is as far as DISCOs. We have talked in the past that there's maybe some things that don't necessarily fit With the build out here in the long term and we'll look to move off a piece of that or a piece or 2 over time and we'll see how that plays out. And I would tell you, as happy as we are with how things have come together and the balance sheet and our balance sheet strength, it only come at 1.4 times Debt to cash flow here and that should be around one times at the end of this year to call it $75 deck. So, down sheet is strong, Travis, but I would expect the proceeds of any of those sales to be earmarked for near term debt reduction.

Speaker 1

So to further strengthen that even more. And then to your comment around what is the portfolio look like going forward. Travis, again, very happy with where we are. I would tell you, our sandboxes are fairly well defined right now. Don't look for us to expand out of where we are in between KaBOB and Montney, The Alberta Montney and then into the Saskatchewan Waterfloods.

Speaker 1

I would say our sandbox is fairly well defined on that front. We'll see how things play out. Happy with how things are. Absolutely in no rush to do anything on an A or a D front. It's been we've spent the last 5 years really building this out and extremely happy with where we are.

Speaker 4

Okay. That's great color. Thanks for that. That's all for me.

Speaker 1

Okay. Thanks, Travis.

Operator

And there are no further questions over the phone at this time. Craig, please proceed.

Speaker 1

Okay. I'll pass it over to Shant. I think he's got He has a few questions here coming in.

Speaker 5

Yes. Thanks, Craig. Couple of questions coming in as we've been chatting. One or a couple still around cost front. 1 asking if we're continuing to see any cost pressures and someone else seeing if we're actually seeing any cost So maybe we can give a little bit of an update on that front.

Speaker 1

Yes, that one is probably best for Ryan to speak to.

Speaker 3

Yes, I would say in general, we're seeing flattening of costs and rates coming out of the recent inflationary environment here probably Led by reductions in casing, steel, tubing costs. But probably pressures cost pressures still remain more on equipment utilization, labor costs, etcetera. But with that, We're keeping our kind of our current cost estimates status quo puts us kind of right in range of our 2023 capital budget of $1,150,000,000 to $1,250,000,000 I would say a couple of exciting things Upon the close of our acquisition, like Craig said, in the Montney, we had our Gold Creek type wells at around $9,000,000 to $9,500,000 per well range. We've quickly, after really only operating there for 2 months, been able To leverage our existing supply chain, our current service partner relationships, already reduced our casing costs, reduce some of our frac costs specifically on sand sourcing and so already have line of sight to sub $9,000,000 well costs there. So that's one thing that I'd highlight and something that we're really excited about.

Speaker 3

Thanks, Ryan.

Speaker 5

Couple more questions here on return to capital. I'll probably break it up into 2. 1, someone's just looking for clarity. It looks like our return to capital payout there for questioning whether or not we increased it from 50% to 60%. So we can give some clarity there first.

Speaker 5

And then the second question someone's asking if we are looking at or would consider increasing that return on capital payout or perhaps accelerating buybacks to narrow the discounts to that?

Speaker 6

Sure. Maybe I'll take this one, Craig. It's Ken. No, our framework hasn't changed. Our total return of capital is really comprised of 2 parts.

Speaker 6

One is the base dividend and the other is a return of some discretionary excess cash. And really the 60% what we've done here is just simplified How we present it, we're doing that now in aggregate return of capital as a percentage of excess cash. And that really now just makes us more comparable to our peers when You're sort of comparing our return of capital proposition relative to peers. So I guess that's the first part. It has not changed.

Speaker 6

And obviously, We're proud of this framework. We've been following it now for this is the Q4. So the second part of that is no, we don't have any plans to revisit the 60% return level. I think this really strikes a healthy balance between a competitive return of capital As well as allowing us some access to capital, to reinvest in the business and to repay debt. So, no, we don't have any plans to revisit the 60%.

Speaker 5

Another question around hedging. Any plans to lower more hedges in for 2024? And just Someone asking particularly on live dips in Q4 2023.

Speaker 1

And you're probably best to speak to that as well.

Speaker 6

Sure. So just as a matter of an update, we are about 25% hedged now through the second half of twenty twenty three. So I think we've built a pretty solid book there and always just looking to enhance it a little bit. But I would Expect us probably not to get past the 30% level. As we look into 2024, we've actually started a program now into 2024 into the first half.

Speaker 6

So we're going to start chipping away at hedging there. We are looking to kind of get hedged out about a year out in that 20% to 30% level. And Obviously, still fighting a little bit of backwardation as you get out a year out here now. And so we'll be patient and disciplined. And as this Market moves up as it has done in the past week here, we'll look to take advantage of that.

Speaker 5

Thanks, Ken. Market access related question, can you talk to CPT's relative market access position and if Trans Mountain coming online soon will help in any way?

Speaker 1

You want to grab that, Ryan?

Speaker 3

Yes, sure. Yes, obviously, Trans Mountain coming on definitely helps to egress out of the basin. We don't have any volumes earmarked For that pipeline, but definitely, we'll open up space and you'd have to think that differentials For most products, hopefully, especially our products out of the Montney will strengthen significantly with that. I think that's definitely a positive for industry and hopeful that will help realize pricing go forward.

Speaker 1

And the only thing I'd add on that is when you look at our portfolio, we are in a very good position as far as where we sit on the Enbridge mainline. So on that front, takeaway for us is a strength. I would also say as we look into as we look at assets and in What we like to both the Montney and the Duvernay acquisitions that we've done over the past few years is just The takeaway or the flexibility around the takeaway out of those assets. So that's certainly a criteria we look at is ensuring that we always have that market access.

Speaker 5

Thanks, guys. Another question here back on Montney, Gold Creek West. Why are you seeing Gold Creek West results stronger than Gold

Speaker 3

Yes. I'll take that, Craig. So yes, I mean Gold Creek East still very good. Our results Our on type well there, 3 of the 4 wells that were in the top 5 of the Top Alberta liquids producers in May are Gold Creek East. So really on typo there.

Speaker 3

I think what we're obviously most excited about Are the Gold Creek West results we're getting? I would say based on all the work our teams have done, geomodeling, reservoir, Metrophysical, when you look at the out performers in Gold Creek West, still early days there, but we think Kind of like we what we did in the Duvernay was wells that are landed at the bottom part of the reservoir are getting the best results. And so we think that the way we're going to frac these wells, we can access all of the net pay by drilling A single bench. And so that's we think is going to be the most capital efficient way to develop this area. The results we're getting and it's they're worth repeating because they are significant.

Speaker 3

The first well, 1900 BOE a day, 80 plus, 85 percent liquids. It's also the IP90. So that well is hanging in there. The first pad that we fracked, The 2 best wells are averaging 1600 BOE a day. And then the second pad that we fracked At only 15 days production, we're over 1,000 BOE a day, 80% liquids already.

Speaker 3

And so Obviously, very excited about that area. Recall that 300 locations of the 600 locations that we identified In the acquisition are in this Gold Creek West area, less than 20% are booked. And also recall The type well, the book type well is only 1,000 BOE a day IP30 at like less than 60% liquid. So obviously, We're really excited about this area. I think a ton of upside.

Speaker 3

And like I said, with only a couple of months operating so far, we've already seen Well costs passed to get to sub $9,000,000 and we'll continue doing that as we trial Different drilling techniques, different bit technology, as we continue to drill here. So obviously, really excited about that area And what it can do in our 5 10 year plans.

Speaker 5

Thanks, Ryan. Another question just going back on the M and A theme. Clearly grown in the Montney and Duvernay, you've defined your sandbox. Is there more opportunities still to do on the conventional oil side of the business back in Saskatchewan?

Speaker 1

Yes, I think, I mean, like anything, we'll always look at opportunities that are in front of us and you never know what's put in front of you and we certainly will do our homework and look at I just double back to what I was saying earlier that we've done a lot of work strategically as we've repositioned the company here over the last 5 years and extremely excited about where we're at now And the pairing of the 2 North American premier resource plays with the Saskatchewan water floods, it's Scott is extremely excited, especially when you think of the balance within the portfolio. So certainly we would look at doing it. I would say again, I'm going to double back to earlier. Don't expect us To go outside our sandboxes, our sandbox is extremely well defined and we'll see again how it plays out here Over the next 12, 24, 36 months on those things, but very content with where we are today and feel really good about not only The 5 years in our 5 year plan, but the next 10 years on how that looks for Crescent Point and what that means for everybody, our shareholders, our employees, our staff.

Speaker 1

There's a lot of excitement now around this table. So feeling really good about where we are. Thanks, Craig.

Speaker 5

Yes, at this time, there's no additional questions from those listening online or anyone on the phone lines as well. So thanks for everyone for joining our call today. And if You have any follow-up questions that weren't answered, please call our Investor Relations team at your convenience.

Speaker 1

Thanks, everyone.

Operator

Crescent Point's Investor Relations department can be reached at 1-855-767-69 23. Thank you and have a good day.

Powered by Quartr

Key Takeaways

  • Our Alberta Montney acquisition materially enhances premium inventory depth and excess cash flow, aligning with the strategy of pairing short-cycle and long-cycle assets.
  • Q2 production of 155,000 BOE/d included ~7,000 BOE/d of wildfire-related downtime, temporarily masking the operational outperformance of our Kaybob Duvernay assets.
  • We returned C$167 million—about 60% of excess cash flow—to shareholders in Q2 via C$93 million in share repurchases plus dividends.
  • We maintained 2023 guidance with H2 production expected at ~179,000 BOE/d, generating over C$1 billion of annualized excess cash flow at US$75 WTI.
  • Our five-year plan targets cumulative excess cash flow of US$5 billion under similar price assumptions, supporting per-share growth, capital returns, and debt reduction.
AI Generated. May Contain Errors.
Earnings Conference Call
Veren Q2 2023
00:00 / 00:00