Veren Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2024

There are 9 speakers on the call.

Operator

Good morning, ladies and gentlemen. My name is Enes, and I will be your operator for Crescent Point Energy's First Quarter 20 24 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 are in Canadian dollars with the exception of West Texas Intermediate or WTI pricing, which is quoted in U.

Operator

S. Dollars. The complete financial statements and management's discussion and analysis for the period ending March 31, 2024 were announced this morning and are available on the Crescent Point, SEDAR Plus and EDGAR websites. All lines are being placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session for members of the investment community.

Operator

During the call, management may make predictions or other forward looking statements regarding future events or future financial performance. 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, Cedar Plus or EDGAR websites or by contacting Crescent Point Energy. Management also calls your attention to the forward looking information and non GAAP measures sections 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.

Operator

Please go ahead, Mr. Brixa.

Speaker 1

Thank you, operator. Welcome everyone to our Q1 2024 conference call. With me today are Ken Lamont, our Chief Financial Officer and Ryan Gritzfeldt, our Chief Operating Officer. We're off to a great start in 2024. As recently stated, our strategic priorities are focused on operational execution, optimizing our balance sheet and increasing our return to capital.

Speaker 1

Our first quarter results showcased how our operational execution and capital discipline led to solid results across our business. In the Q1, we produced over 198,000 BOE per day. We generated $130,000,000 of excess cash flow, returning 60% of that to our shareholders through our base dividend and share repurchases. And on the balance sheet front, we reduced our net debt by over $150,000,000 Earlier this week, we entered into an agreement to dispose of non core assets in Saskatchewan for $600,000,000 We plan to direct the net proceeds from this disposition towards debt repayment further strengthening our financial position. As a result, we forecast our net debt at the end of 2024 to be $2,800,000,000 or 1.1 times debt to cash flow.

Speaker 1

This would mark significant net debt reduction of $1,000,000,000 since year end 2023. All these highlights serve as examples of how we are executing on our strategic plan and maintaining our commitment to enhance shareholder value. I'd like to focus today on our operational excellence across our entire portfolio, because that is what ultimately drives the effectiveness of our strategic priorities. In the Alberta Montney, we continue to demonstrate the quality of our asset base and our technical strength. Our recent well results show that we are drilling some of the top wells, oil and liquids producing wells, not just in the area, but across the entire Western Canadian Sedimentary Basin.

Speaker 1

We have also seamlessly integrated our recently acquired Alberta Montney assets and brought on stream 18 wells year to date with strong results. In Carr West, we brought on stream 3 multi well pads since closing our acquisition in late 2023. These wells were drilled by the prior operator using their frac design including tighter well space. The peak 30 day well rates from these first two pads have ranged from 400 to 1400 BOE per day with 85% liquids. The 3rd pad recently came on stream with strong initial results.

Speaker 1

We will be bringing on stream our first fully operated pad in this area early second half of the year, which will utilize our drilling and completions design including wider well space. At our recent multi well pad in Gold Creek West, we tested different completions designs. We used a plug and perf technique on 2 of the 4 wells instead of sliding sleeves and have seen promising results to date. This pad had an average peak 30 day rate of 1800 BOE per day per well with 85% liquids waiting. As good as these results are, we believe that we can do more to unlock future value by further optimizing our drilling and completions designs.

Speaker 1

Consistent with previous quarters, our KaBOB Duvernay results also feature strong IP30 rates with high liquids weighting, most of which is condensate. This leads to generating prolific returns in the area. In the Q1, I'm proud to say that our operating team achieved a remarkable milestone by successfully drilling the longest onshore well in Canadian history. Our record well had a total measured depth of over 9,000 meters, which included a lateral length of over 5,400 meters. It was drilled as part of a multi well pad in the volatile oil window to access portions of the reservoir that otherwise would not have been recovered.

Speaker 1

We will bring this pad on stream in the second half of the year and we are excited to see the results. Our most recent pad in this area, which came on stream in the Q1 had an average peak 30 day rate of over 1500 BOE per day per well comprised of 75% liquids. I'd like to congratulate our Kaybob Duvernay team for their tremendous accomplishment in drilling this record setting well. This is yet another example of our technical bench strength and overall operating expertise. In Southeast Saskatchewan, we continue to advance our open hole multilateral well development program and are seeing encouraging results from these wells.

Speaker 1

We plan to drill 10, 2 mile, 8 legged wells during 2024. With the recently announced Government of Saskatchewan royalty incentive, the net present value and payout of our program improves by 10%. With our recently announced non core asset disposition in Saskatchewan, we revised our 2024 annual production guidance to 191,000 to 199,000 BOE per day. Our capital expenditures guidance of $1,400,000,000 to $1,500,000,000 remains unchanged due to the minimal spending we had allocated to the disposed assets for the remainder of the year. On a pro form a basis, we expect to generate 8 $75,000,000 of excess cash flow in 2024 at $80 per barrel WTI.

Speaker 1

The majority of this excess cash flow is weighted to the second half of the year based on the cadence of our capital program. We will continue to allocate 60% of our excess cash flow to shareholders and the remaining 40% to the balance sheet. As I step back and look at where our company is headed, I've never been more excited. We will continue to focus on our strategic priorities of operational execution, optimizing our balance sheet and increasing our return of capital to our shareholders. Our priorities are supported by an asset portfolio with 20 years of premium drilling inventory to provide disciplined per share growth and significant excess cash flow.

Speaker 1

Our corporate transformation improvements that we've made to get to this point are truly exceptional. Our Q1 results clearly show how positive the start of the year has been for us. Before wrapping up, I'd like to invite everyone listening in on this call to our AGM later this morning, which will be held virtually. Please visit our website for further details. We'll now open the call to questions from the investment community, followed by questions from the webcast.

Speaker 1

Operator, please open the line to questions.

Operator

Thank you, sir. Ladies and gentlemen, we'll now begin the question and answer session. Your first question comes from Dennis Fong with CIBC World Markets. Dennis, please go ahead.

Speaker 2

Hi, good morning and congrats on the strong results this morning. And thanks for taking my questions. My first one is maybe focused around the strong type of results that you guys have showcased. I was just curious as to how would you think about or what level of improved confidence would you need to start applying these stronger results to your plan? And how would that potentially affect either the cadence of production growth or CapEx or free cash flow generated over both the next 12 months and the 5 year program?

Speaker 1

Hey, Dennis. Thanks for the question. It's Craig here. I'll take some of this and then I'll pass it to Ryan as he's with me here too and he can talk to you a lot about how the operations have been going. But Dennis off to a great start to the year.

Speaker 1

Happy to be with where we are just over that 198,000 BOE per day. Got a good cadence of operations running as you're well aware. We've got the 2 rigs running in the Duvernay. We have the 3 rigs running in the Montney and then we bought between call it 2 to 3 rigs in Saskatchewan depending on the timing of the program. But operationally things have been going very well.

Speaker 1

Well results have been coming in very well. We're excited to see when you think to the back half of the year with our spacing in particular in the Montney, not only our spacing, but our well designs as those pads start to come online. We're certainly incurred for that. Your question around well results and maybe more pointing towards some outperformance relative to type curves. I think we spoke a little bit about this at the Analyst Day.

Speaker 1

We'd like to see call it 2 to 3 to 4 pads in an area with consistent results that are in and around those numbers as we slowly creep that up within our type wells. So we take a little bit more of a measured or balanced approach. So ideally you start to see this flow in over time, but really happy with where we are to date. Happy with the performance, encouraged with the performance of the operations team. And Ryan, I don't know if you'd have any other comments on tight wells.

Speaker 1

Yes.

Speaker 3

I think Craig answered it well. And it is a good question. We've been getting that question a lot. Specifically in Gold Creek West, where like Craig mentioned, we're getting really strong results, 1800 BOE a day, 85% liquids IP30s versus our type curve closer to 1300 BOE a day. We do need more production history, how are those wells going to decline before we up our type well across the area in our 5 10 year plans.

Speaker 3

We have 300 locations in that area and we're going to actually test probably tighter spacing to 7 wells a section, which would add another 100 locations. But I think it's not prudent to just apply that 1800 BOE a day result across the whole area. So I think that kind of shows the how we've adequately risked our production in our 2024 budget and 5 year plan. And as we continue to get more results, more pads, more production history to fully understand the declines, that's when we'll look at bumping our assumptions in the current year and go forward.

Speaker 2

Great. Appreciate that color and context. My second question is shifting maybe more towards the balance sheet. You've obviously completed some non core asset sales in the Q1 and recently announced further non core asset sales. When I think about, we'll call

Speaker 4

it, the

Speaker 2

$1,000,000,000 of potential debt or deleveraging that you see over the next 12 months, both organically and inorganically. How comfortable are you with that pace of deleveraging? And obviously, there's a further debt target behind that. But I just wanted to understand about the pace of that versus where commodities are, your current capital plans and what that might afford you for flexibility in terms of capital allocation? Thanks.

Speaker 1

Thanks, Dennis. So Ken is with us here too as well. So he can give you some color on this in a second. But for us, when

Speaker 5

you look at where

Speaker 1

we were at the end of last year after we did that big strategic Montney acquisition with Hammerhead, we had our balance sheet at about call it just under $3,700,000,000 of absolute debt. So for us to chew out basically $1,000,000,000 in a 12 month period, I would say is a good pace of debt reduction. We're happy with that and happy with projections on that both through the non core dispositions in Southern Alberta and Northern Alberta, which we closed in the Q1 and now that the most recent one here in Saskatchewan that we just had announced. So when you combine the proceeds from that plus what we see for excess cash flow generation and the shares that the company keeps that's in and around $1,000,000,000 So it's a good significant move, our strengthening of our balance sheet. Look for us as we talk Dennis and you and I talked in the past, we'd like to be here a near term debt target.

Speaker 1

I'm seeing near term of around $2,200,000,000 of absolute debt. That's about one times debt to cash flow in that call $60 to $70 price environment, dollars 60 sorry, dollars 60 to $65 WTI price environment that would be about one time. So we want to move quickly towards that. So look for us to try and accelerate into that as we go, but very happy with the progress we've made to date. And we'll continue towards that strengthening towards it that like you say $2,200,000,000 And then as we get to that level, look for us to start to talk about increasing our return of capital to shareholders.

Speaker 1

So right now we returned 60% of our excess cash flow to our shareholders. As we get closer to that number or in and around that number look for us to grow that profile as well. And then further beyond that, when you look at the business moving forward, Dennis, we'd like to be in the neighborhood of about $1,700,000,000 of absolute debt is how we'd like to run the business for the long term. And that would equate to one times debt to cash flow at $50 WTI. And when you're in that type of level, you're pretty much bulletproof from a balance sheet standpoint.

Speaker 1

So when we talk balance sheet optimization, that's what we're gearing towards is that type of level. And I can tell you, I'm pretty pumped myself on a $1,000,000,000 net reduction here over call it a 12 month period. Ideally, Dennis, next time we're talking, we can say we're doing even more than that, but certainly a good start. And Ken, I don't know.

Speaker 2

Yes. The only thing I'll add to that Dennis is, we're obviously very highly hedged here at the back half of this year. So, we're about 45% fixed price hedged on oil, 30% on gas and that extends in oil into 2020 5 as well in the first half about 20%. So as far as our ability to harvest that retained excess cash, feel very comfortable just given the level of the hedge books as well too. So, that'll provide a little more certainty in bringing that in and bringing that debt down.

Speaker 2

Great. I appreciate the context there. I'll turn it back. Thanks.

Speaker 1

Thanks, Dennis.

Operator

Thank you. Your next question comes from Amir Reif with ATB Capital. Please go ahead.

Speaker 4

Thanks. Good morning, guys. Just a few quick questions. Just on those Carr West wells, I know it was a previous completion approach, but just the variability between the 400 to 1400. Can you just give us a sense of what was causing that and if there were any Lower Montney wells included in those paths?

Speaker 1

Yes, I think it's best for Ryan to grab that one. Yes, good question.

Speaker 3

So the 5 of 11 pad, it did have 3 lower or it does have 3 lower Montney wells. We spoke a little bit at our Investor Day at how the previous operator drilled through a fault on that pad. And so there are a handful of wells that have shortened lateral lengths because of that. And we also think that the lowers were drilled

Speaker 1

a little bit too low, close

Speaker 3

to the bottom, the very bottom of the Montney zone. So we think that definitely some of the wells have been impacted by that. Some of the B and the C Montney wells are strong at that 1400 BOE a day. What we're excited about here go forward, so we're bringing a pad on right now. It's our 2 to 10 pad.

Speaker 3

We'll have IP30 results in the next quarter. Still at the previous operator well spacing, but with our fluid system in our frac design. So look for those results. And then we're also right now drilling a pad down in that Carr South, Carr West area, the 523 pad, where we're testing the Lower Montney again, but we didn't drill those as low as on that 5 of 11 pad. So look for that pad, the 5 of 23 pad where it's our well spacing.

Speaker 3

So a little bit wider well spacing and our fluid system for our frac. So look for those results in the summer.

Speaker 4

And I don't believe you booked too many lower mining wells like how big could the inventory at the front end zone

Speaker 6

Or is it too early? Yes.

Speaker 3

I think yes, there's a very small amount of Lower Montney booked. But yes, if you apply a fairly conservative well spacing, there's probably conservatively 150, 200 Lower Montney locations in that area.

Speaker 4

Okay. Sounds good. But just a handful booked. Yes. And then just a question on the different completion approach of the sliding sleeve versus plug and perf.

Speaker 4

It doesn't seem to be making much of a difference on the performance, but obviously lower well costs. Can you just give us a sense of how much you could reduce your well costs and when you'd be comfortable enough potentially shifting more to plug and perf and what the magnitude of the well cost saving would be?

Speaker 1

Yes. So this is Craig. Extremely excited about how those wells have came in. Do know that the plug in curve, the IP wasn't quite as high as the sliding sleeve. So the sliding which makes sense when you think of that single entry point.

Speaker 1

Extremely excited though with how the operations team went through on the plug and perf and the success we had. And really your point there, the big win on that is twofold. 1, ideally the decline rate is a little bit shallower. And then 2, the cost of those wells was about 500,000 ish less than what we are seeing on the sliding sleeve. So it's a significant win operationally for the team and then as well on the cost structure moving forward.

Speaker 1

So we do have a few more of those wells that we're going to be doing this year. And we built in that call it cost savings into those wells as we see it in our 2024 program. Ryan, I don't know.

Speaker 3

Yes. No, that's good.

Speaker 4

I appreciate that color.

Speaker 1

Yes, Kevin. Yes, Kevin.

Speaker 4

Absolutely. And I appreciate the color. And just one final question, just on the open hole multi lots over in Saskatchewan. I believe the economics for your open holes are going better than your frac wells. Is this an area where eventually should we be thinking about switching over to open holes for the full development eventually over time?

Speaker 4

Or does open hole only work over certain parts of that play?

Speaker 3

Yes, good question. For the most part, the open hole multilaterals work as we're pushing the edges of the play, specifically So in our core, the So in our core, the conventionally fracked wells, I think will still give us the best results. But it's when we start pushing the boundaries, specifically to the north and to the northeast, that's where we're getting these really good results. The last open home multilateral we brought on into March, it's been 2 months now in and around that 2 25, 2 50 barrels a day. So continuing to get great results, it's increased our inventory in the play.

Speaker 3

And like we said in the Investor Day, this is an inventory that we're going to rush out and add rigs, but it's definitely will help us maintain our production levels in the play and extend our drilling inventory life.

Speaker 4

Okay, terrific. Thanks.

Operator

Thank you. Next question comes from Aaron Bilkoski with TD Cowen. Please go ahead.

Speaker 5

Hi, good morning guys. My question is on the CapEx associated with the assets that you had sold. I guess, am I correct to assume that you were planning to spend roughly $50,000,000 there?

Speaker 1

Good morning, Aaron. When you look into the 5 year plan, so beyond 2024, we had about $50,000,000 allocated to those assets. So from 2025 to 2028, it was about $50,000,000 a year. When you look at 2024, with us going through the disposition process, we had a very minimal amount of capital allocated to that. And I want to say, had the assets still been with us this year, You've just spent a minimal amount somewhere in that neighborhood of $15 ish million I want to say, I think in and around there in the back half of the year and mainly most of that was allocated to Flat Lake.

Speaker 1

But no, your assumption is right moving forward, it would have been around 50 in the 5 year plan per year. This year was only about $15,000,000 ish.

Speaker 5

Got you. So as I look ahead to 2025, you have seems like roughly $50,000,000 in unallocated capital. Where do you see that going? It's not enough to obviously add another rig, but do you use that to squeeze out a few more Montney and Duvernay wells, your pace of drilling and completion may be running a little bit faster than you had budgeted?

Speaker 1

Yes. And we'll see how that goes. And Aaron, like you mentioned earlier on the call, the cadence of operations has been good. Our team is just off and running in particular with Himantney. And I'm excited and I know Ryan is excited with how the performance has been.

Speaker 1

We actually we just ended up clipping a pacesetter well for us here, call it a month or 2 ago that was basically 11 days. So it certainly tightened the timeframe on how fast that we're drilling the wells, which is good because you know that drives your capital structure. When you look within the 5 year plan, we'll spend some time here over with now having the disposition done and through the summer on looking at capital allocation across the portfolio. And then we'll look to see how that plays within the 5 year plan. And I would expect more detail in and around the 5 year plan later on this year.

Speaker 1

Right now, we've basically did it. I don't want to say mechanical update, but basically we've removed the assets that have been sold out of that plan and haven't really put any real work into the reallocation of that capital, if it even happens. I mean, we're pretty happy with how it's going to date. So just because we had that in there doesn't mean we'll end up doing that or spending that. Got

Speaker 5

it. Thanks very much, Craig. I appreciate that.

Speaker 6

Yes.

Operator

Thank you. Your next question comes from Jeremy McCree with BMO Capital Markets. Please go ahead.

Speaker 7

Hi, guys. You talked about well improvements, well cost savings. How much of this have you built into 2024 2025? Like I know you said there's some of it built in, but what could we potentially see for revisions if these wells continue to come above expectations or the well costs continue to come below expectations? I'll leave it at that for now.

Speaker 3

Hey, Jeremy, it's Ryan here. Yes, I mean, as you go, you build a little bit in, right? But again, what I've been saying is, these things take time. So we said, our Montney drills depending where you are, dollars to $10,000,000 per well. And we have line of sight to sub $9,000,000 over the next 12 to 24 months.

Speaker 3

So it takes time. We want to see it repeatably before we build more in. Like Craig mentioned, we brought in a different walking double rig into the play. It's taken a few pads to finally find its stride. It's drilled as quick as well at just under 11 days.

Speaker 3

But these things take time, right? So we've built a little bit in, but as we go, obviously, we'll build in more kind of similar to the production results question. We need to see the results being repeated consistently and we'll build it in over time.

Speaker 1

The one thing I'd note to Jeremy, so as you're well aware, one of the things that really drives your cost structure is time on location and Ryan alluded to that. So as we get our rigs running and we get smarter and we're doing things better and the team is really learning off each other, then ideally you drive that time and location down. That's both on the drilling and the completion side as we follow along the 3 rigs in the Montney in particular with 1 frac spread. But the other thing that works in our favor is our internal procurement division and we've had some success recently here with working with a new service provider to pump our fracs. And that ended up saving us a material of money here on a per well basis too.

Speaker 1

So Ryan's team is working that into the budget. But all that works in our favor as well too. So we'll see how that ends up playing out, but very happy with both the ops team on what they've been doing to date and then as well the procurement division on what they've been working with our service providers on.

Speaker 7

Okay. And maybe just a quick follow-up there too. Is there any new concepts that you haven't talked about here today? Like, so we talked about trying the plug and perf versus the NCS. Is there any other new concepts that you're going to test over the rest of the year that you'll talk about come Q2, Q3 and say, yes, it actually kind of worked here?

Speaker 1

Go ahead.

Speaker 3

Yes. I don't think so, Jeremy. I think what we're doing right now keeps us busy with new things. Craig mentioned, we just drilled the longest onshore well in Canada in the Duvernay. And we've had questions, well, what did you do differently?

Speaker 3

And honestly, not a lot different. It's just taking the learnings. We've been in the play now for what, 3 years? It's taking the learnings and applying them. And that's why I say some of these things take time.

Speaker 3

And but with all the things we do have going on right now, it's exciting to see where we can bring our costs to. Like Craig mentioned with supply chain management, with our operations team continuing to push the limits. But in terms of like new things like plug and perf in Gold Creek East that we're trying, that there really isn't anything new that I can speak of.

Speaker 1

And Jeremy, I'd add to that. Our teams, as you get in here, they learn from each other and the Duvernay team learns from the Montney team in a way they go and we apply different things as we go. So it's a consistent evolution and always being innovative around that. So you're always looking at different MUDs and bit systems and how that works. So ideally that drives your cost structure.

Speaker 1

The other thing is we're typically a little bit more conservative on our well spacing as you're well aware. We'd like to be we'd rather be a little bit wider and creep our way in as opposed to being too tight and have to creep our way out and revise inventory to the negative. So one thing you will see us do this year, Ryan said it earlier on the call is with this success we've been having in Gold Creek West, these like that last pad is call it 1800 BOE per day on average per well at 85% oil or liquids. Look for us to tighten in that spacing on an offsetting pad to the the pad is going to go directly to the west. We're going to tighten in that spacing.

Speaker 1

We're going to go to from 5 wells to 7 wells per DSU. Ideally, we get some very good strong results like we've been seeing. And then that opens up inventory in that entire airway area. So it's going to be a lot more of that. And then obviously when you think of the geos and how our landing zones and how they're steering the wells.

Speaker 1

They learn as we go, let's see optimal landing position, how do you want to stagger your zones between the different areas? So it's going to be more of that, just getting smarter and then look for us over the years to get even better. And like Brian mentioned that Duvernay well, we've been running in the Duvernay now for 3 years, a little over 3 years. So that well is 19 or basically 9,017 meters. That horizontal leg was 5,400 meters long.

Speaker 1

And Jeremy, we did that in one bit run. So not only is it the longest, well in Canada, it's also drilled half a day faster than the peer who had that title in front of us. So the team, they did an incredible job on that. But we'll see how it plays out with us in the Montney.

Speaker 7

Great guys. Appreciate it. Thank you.

Speaker 1

Thanks Jeremy.

Operator

Thank you. Your next question comes from Travis Wood with National Bank Financial. Please go ahead.

Speaker 6

Yes, thanks and good morning. The question is probably for Ken. I just wanted to take it back to what Dennis was getting at around debt. I guess a couple of questions to get here. First, any more assets to be sold, smaller non core stuff, the scraps that are left in the portfolio?

Speaker 6

And then how should we is debt to cash the right way to think about where leverage sits? Or as you think about accelerating debt repayment, could we start to think this on a debt to cap base? Or what's the right way to think about that? And how low should the absolute debt number get to? So a lot of questions in there, but kind of just driving at 1.

Speaker 6

And then any way to accelerate some of the repayment of the senior notes and the bonds that are coming due over the next couple of years?

Speaker 1

Travis, thanks for the question. I'll maybe grab the first one as far as A and D and then I can pass it to Ken on the debt and the debt structure and how we're looking at optimizing the balance sheet. As far as A and D, Travis, you've watched Crescent Point over the last 6 years, but in the last maybe 3 years in particular on the movement within the portfolio. And I did mention to you that we're going to take a good long pause as far as the acquisitions. We're happy with how things have come together here.

Speaker 1

So don't look for us this year to do anything on the acquisitions front. I would also tell you too as far as the upstream dispositions, when you look at now with us having moved off, what we just moved off recently here, both in Alberta and Saskatchewan, we're pretty we're excited with how the portfolio fits and stands today. So I wouldn't look for any near term dispositions, further dispositions, upstream dispositions either. So again, happy with that as far as that movement on the portfolio and then we'll look to execute here over the next call it 12 ish months. And then I'll maybe pass to Ken as far as the debt structure and balance sheet optimization.

Speaker 2

Yes. So on the debt side, Travis, I think the way we're approaching it is a bit of a leverage at a lower oil price is kind of where we set what I'll call our targets are more optimal in debt level. And so if you think about we've been signaling here on the back of the deal and we opened the year at $3,700,000,000 of debt. When we talked about reducing that by about $1,500,000,000 to get to $2,200,000,000 That's kind of a debt to cash flow of around 1 times at between $60 $65 US WTI. And so that's really an initial level where we think if we can deleverage down to that, that gives us kind of our first level of comfort and where we can kind of reflect on potential return of increasing the return of capital proposition to shareholders.

Speaker 2

In the longer run, we'd like to run our business at a one time debt to cash flow at a $50 U. S. WTI. And so that's to Craig's earlier comment on this call about $1,700,000,000 of absolute debt. And so that's really what we would like to manage the business at.

Speaker 2

Now obviously there will be a period of times where we'll have we'll be well below that. There could be periods of times going forward will be slightly above that. I think that's kind of where we're shooting to manage the business on average. And so that's really how we're thinking about debt levels and where we'd like to get to. With respect to the bonds, absolutely.

Speaker 2

There are early repayment provisions within those bonds. Where interest rates sit today, there wouldn't really be any penalties at all to repay them early. However, outside of just having some covenants associated with those bonds which were well inside of obviously, they're carrying an interest rate of 4%. So, I'm not really motivated right now to repay those things early. And so I think we'll probably look to leave those outstanding for a bit more period of time here.

Speaker 2

And then obviously to Craig's point, we're focusing on kind of getting to that $2,200,000,000 of debt, retaining some excess cash and just driving that balance sheet down this year a little bit further.

Speaker 6

Okay, perfect. And then so is that 1.7, is that the threshold on absolute debt where we could start to think about 100% of excess cash be returned? Is that the optimal level for that scenario to unplay?

Speaker 1

So Travis, like we've mentioned, as we get to 2.2, look for us to grow the allocation that we're returning. So right now, we've returned 60% of our excess cash flow goes back to the shareholders in the form of base level dividends and then the top up is all happening right now through share repurchases. And we certainly believe that that makes sense with how we trade on our intrinsic value. So look for us to continue that. As we get to $2,200,000,000 look for us to grow that percentage upwards and call it somewhere in that 70%, 75% -ish ranges as we get there and we'll see how that plays out as we work through that with both the management team and the Board.

Speaker 1

As we get to 1.7%, I wouldn't expect that to grow any further, Travis. I mean for us, there's always going to be a component of that excess cash flow that we maintain in the business. So to continue to strengthen either a) the balance sheet or to if you want to allocate a little bit more to some organic growth or that sort of thing. But we certainly believe in always maintaining a certain level of excess cash flow for us to stay in the business and quite happy to drive the balance sheet down well below that $1,700,000,000 of absolute debt. That is our target.

Speaker 1

So don't look for us at any point in time to go to that 100. And I would also say to Travis, when you look at us relative to our peers, with our asset base and our netback, both operating netback and then cash flow netback. I think Crescent Point punches well above its weight as far as excess cash flow per share generation. So our 75% certainly be competitive with what some of those other peers would be doing at a little bit higher level.

Speaker 6

Okay. I appreciate all the color there. I'll turn it back.

Speaker 1

Thanks, Travis.

Operator

Thank you. There are no further questions from the phone line. Please proceed.

Speaker 1

Thanks, operator. I'll pass it over to Sarfraz Samani, our Manager of Investor Relations to moderate a couple of questions here from the webcast.

Speaker 8

Yes. Thanks, Craig. So there's just a couple of questions on tax and I'm just going to group them here into 1. The question would be

Speaker 3

when do we expect to pay cash taxes and does this timing get impacted by

Speaker 2

the recent non core Saskatchewan disposition? Yes. So the non core Saskatchewan disposition didn't have a real material impact really on our production excess cash generation and or tax profile. Right now as we sit on strip, we will not be taxable until the year 2026. In 2026, I would expect to be on strip taxable at kind of a 9% of our cash flow would be the effective tax rate and that kind of holds steady going forward at strip over the following years.

Speaker 2

So, no cash taxes in 2024 or in 2025.

Speaker 8

So, there are no more questions right now on the line. So, just wanted to thank everybody for joining us, joining our call today.

Speaker 1

Thanks everyone.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.

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Key Takeaways

  • In Q1 Crescent Point delivered 198,000 boe/d of production, generated $130 million of excess cash flow, returned 60% to shareholders via dividend and buybacks, and reduced net debt by over $150 million.
  • The company agreed to dispose of $600 million of non-core Saskatchewan assets, directing net proceeds to debt repayment and targeting $2.8 billion of net debt (1.1× debt/cash flow) by year-end 2024.
  • Operational execution in the Alberta Montney and Kaybob Duvernay continues to impress, with 18 Montney wells onstream, an onshore record 9,000 m measured-depth Duvernay well, and plug-and-perf tests in Gold Creek West averaging 1,800 boe/d at 85% liquids.
  • In Southeast Saskatchewan the open-hole multilateral program is advancing with strong early results and a new provincial royalty incentive boosting project NPV and payout by 10%.
  • 2024 guidance was maintained at 191,000–199,000 boe/d and $1.4–1.5 billion CapEx, with pro forma excess cash flow of $875 million at US$80 WTI, allocated 60% to shareholders and 40% to further debt reduction.
AI Generated. May Contain Errors.
Earnings Conference Call
Veren Q1 2024
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