Crescent Point Energy (CPG) - 2024 Q1 - Quarterly Report

Overview Crescent Point reported strong Q1 2024 production and financial results, reducing debt while strategically divesting non-core assets First Quarter 2024 Highlights In Q1 2024, Crescent Point's production surged 43% YoY to 198,551 boe/d, driven by the successful integration of Alberta Montney assets, achieving strong financial results with $568.2 million in adjusted funds flow and $130.8 million in excess cash flow, reducing net debt by $155.2 million to $3.58 billion, though a non-cash impairment of $512.3 million related to assets held for sale resulted in a net loss of $411.7 million, with subsequent announcements including a $600 million disposition of non-core Saskatchewan assets and revised annual production guidance Q1 2024 Key Metrics | Metric | Value | Source | | :--- | :--- | :--- | | Average Production | 198,551 boe/d | 43% increase YoY | | Development Capital Expenditures | $398.6 million | 45 (38.8 net) wells drilled | | Operating Netback | $36.60 per boe | Strong despite weaker oil differentials | | Adjusted Funds Flow from Operations | $568.2 million | - | | Adjusted Net Earnings from Operations | $187.0 million | - | | Excess Cash Flow | $130.8 million | - | | Net Debt Reduction | $155.2 million | Ended quarter at $3.58 billion | | Net Loss | $411.7 million | Due to non-cash impairment on assets held for sale | - The company closed dispositions of its Southern Alberta assets for $38.1 million and its Swan Hills assets for $80.5 million during the first quarter[7] - Subsequent to Q1, the company announced a $600 million disposition of non-core Saskatchewan assets, with proceeds intended for debt reduction, leading to a revision of the 2024 annual average production guidance to 191,000 - 199,000 boe/d, while capital expenditure guidance remained unchanged[9] - The company actively hedged its production, with approximately 45% of oil and liquids and over 30% of natural gas production hedged for the remainder of 2024[8] Presentation of Continuing and Discontinued Operations The company's financial results are presented with a distinction between continuing and discontinued operations due to the 2023 disposition of North Dakota assets, with a reconciliation table provided Reconciliation of Continuing and Discontinued Operations (Q1 2024 vs Q1 2023) | ($ millions) | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | | Continuing | Total | Continuing | Total | | Oil and gas revenue | 1,022.3 | 1,022.3 | 695.8 | 808.9 | | Net income (loss) | (398.9) | (411.7) | 184.8 | 216.7 | - The classification of the North Dakota assets as a discontinued operation follows IFRS 5 standards, as they represented a distinct geographical area of operations[11] Results of Operations Q1 2024 saw significant production growth driven by acquisitions, though lower commodity prices impacted overall financial metrics Production Total production from continuing operations increased by 68% YoY to 198,551 boe/d in Q1 2024, primarily driven by acquisitions in the Alberta Montney, which also shifted the production mix, increasing the natural gas weighting from 22% to 33% Average Daily Production (Continuing Operations) | Production (boe/d) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Crude oil and condensate (bbls/d) | 113,607 | 78,191 | 45% | | NGLs (bbls/d) | 19,077 | 13,562 | 41% | | Natural gas (mcf/d) | 395,204 | 157,690 | 151% | | Total (boe/d) | 198,551 | 118,035 | 68% | - Production from Alberta assets surged by 155% to 136,810 boe/d, while Saskatchewan production saw a slight decrease of 4% to 61,741 boe/d[14] - The increase in production is mainly attributed to the acquisitions of Alberta Montney assets in May and December 2023, along with organic growth[14] Marketing and Prices The company's total average selling price decreased by 15% YoY to $61.32/boe, primarily due to significantly lower natural gas prices and weaker crude oil differentials, as benchmark WTI prices were stable, wider differentials for LSB and MSW crude negatively impacted realized prices, and natural gas prices fell sharply due to a mild winter and high inventory levels Average Selling Prices (before derivatives) | ($/unit) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Crude oil and condensate ($/bbl) | 90.22 | 92.64 | (3)% | | NGLs ($/bbl) | 37.38 | 41.63 | (10)% | | Natural gas ($/mcf) | 3.07 | 4.17 | (26)% | | Total ($/boe) | 61.32 | 71.73 | (15)% | - LSB and MSW crude oil differentials weakened due to increased supply in the WCSB and delays in the TMX pipeline expansion[25] - Natural gas prices (AECO and NYMEX) were significantly lower, decreasing 22% and 35% respectively, due to a mild winter, below-average demand, and high storage levels[23] Commodity Derivatives The company's risk management program resulted in a realized commodity derivative gain of $4.5 million in Q1 2024, a significant reversal from a $7.4 million loss in Q1 2023, though due to rising forward prices at quarter-end, the company recorded a large unrealized derivative loss of $217.8 million, compared to a $20.6 million gain in the prior year Realized and Unrealized Commodity Derivative Gains (Losses) | ($ millions) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Realized Gain (Loss) | 4.5 | (7.4) | (161)% | | Crude Oil | 2.2 | (9.8) | (122)% | | Natural Gas | 2.3 | 2.4 | (4)% | | Unrealized Gain (Loss) | (217.8) | 20.6 | (1,157)% | | Crude Oil | (193.8) | 28.0 | (792)% | | Natural Gas | (24.0) | (7.4) | 224% | - The unrealized crude oil loss was due to an increase in Cdn$ WTI forward prices at March 31, 2024, compared to year-end 2023[36] Financial Metrics Breakdown This section details key financial metrics: oil and gas sales rose 45% to $1.1 billion due to higher production, operating expenses per boe decreased 13% to $13.89 reflecting the lower-cost structure of new Alberta Montney assets, transportation costs per boe rose 47% due to higher tariffs, the overall operating netback fell 18% to $36.60/boe driven by lower prices and higher transport costs, and a significant impairment of $512.3 million was recorded on assets held for sale, leading to a net loss Key Financial Metrics (Q1 2024 vs Q1 2023) | ($ millions, except per boe) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Oil and Gas Sales | 1,107.9 | 762.0 | 45% | | Royalties | 113.9 | 86.0 | 32% | | Royalties per boe | 6.30 | 8.10 | (22)% | | Operating Expenses | 251.0 | 169.0 | 49% | | Operating Expenses per boe | 13.89 | 15.91 | (13)% | | Transportation Expenses | 81.8 | 32.8 | 149% | | Transportation Expenses per boe | 4.53 | 3.09 | 47% | | Operating Netback per boe | 36.60 | 44.63 | (18)% | | Interest Expense | 60.8 | 16.0 | 280% | | DD&A per boe | 19.04 | 17.55 | 8% | | Impairment | 512.3 | — | N/A | - The decrease in royalties per boe and operating expenses per boe is primarily due to the addition of lower-cost, lower-royalty Alberta Montney assets[42][46] - The company recorded a non-cash impairment loss of $512.3 million related to the classification of certain non-core Saskatchewan assets as held for sale[74] Cash Flow, Funds Flow, Net Income (Loss) and Adjusted Net Earnings Adjusted funds flow from continuing operations increased 30% to $568.2 million, driven by higher production, however, the company reported a net loss from continuing operations of $398.9 million, a stark contrast to the $184.8 million net income in Q1 2023, primarily due to the large impairment charge, while adjusted net earnings from continuing operations remained stable at $187.0 million Profitability and Cash Flow Summary (Continuing Operations) | ($ millions, except per share) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Cash flow from operating activities | 411.2 | 369.8 | 11% | | Adjusted funds flow | 568.2 | 438.6 | 30% | | Net income (loss) | (398.9) | 184.8 | (316)% | | Net income (loss) per share - diluted | (0.64) | 0.33 | (294)% | | Adjusted net earnings | 187.0 | 187.7 | 0% | | Adjusted net earnings per share - diluted | 0.30 | 0.34 | (12)% | - The significant net loss was primarily due to the $512.3 million impairment recorded in the first quarter of 2024[83][74] - Excess cash flow decreased to $130.8 million from $153.4 million in Q1 2023, mainly due to higher capital expenditures which offset the increase in adjusted funds flow[87] Discontinued Operations For Q1 2024, the company recognized a net loss from discontinued operations of $12.8 million, attributed to final closing adjustments related to the 2023 sale of the North Dakota assets, compared to a net income of $31.9 million from these operations in Q1 2023 Financial Summary of Discontinued Operations | ($ millions) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Adjusted funds flow | — | 86.3 | (100)% | | Net income (loss) | (12.8) | 31.9 | (140)% | - The net loss in Q1 2024 was a result of final closing adjustments related to the sale of the North Dakota assets[89] Capital Expenditures and Liabilities Capital expenditures increased due to Montney activity, complemented by strategic asset dispositions and reduced decommissioning liabilities Capital Expenditures and Dispositions Development capital expenditures for Q1 2024 were $398.6 million, a 27% increase from Q1 2023, driven by heightened activity in the Alberta Montney, with the company actively managing its portfolio by completing dispositions of its Southern Alberta and Swan Hills assets for a combined total of $118.6 million, and classifying certain non-core Saskatchewan assets as held for sale Capital Expenditures Summary | ($ millions) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Development capital expenditures | 398.6 | 314.2 | 27% | | Capital dispositions | (105.8) | (2.6) | 3,969% | | Total | 315.2 | 696.8 | (55)% | - The increase in development capital was primarily due to increased activity in the Alberta Montney, with 45 (38.8 net) wells drilled[97] - Completed dispositions in Q1 2024 include Southern Alberta assets for $38.1 million and Swan Hills assets for $80.5 million[94][95] Decommissioning Liability The company's decommissioning liability decreased significantly by $142.9 million during Q1 2024, ending the period at $595.9 million, primarily due to liabilities associated with disposed assets and ongoing abandonment and reclamation activities - Decommissioning liability decreased from $738.8 million at year-end 2023 to $595.9 million at March 31, 2024[101] - The decrease is mainly due to liabilities disposed of through capital dispositions and the company's reclamation program[101] Liquidity and Capital Resources The company improved its net debt position and maintained strong liquidity, continuing its share repurchase program Capitalization and Debt The company strengthened its balance sheet in Q1 2024, reducing net debt to $3.58 billion from $3.74 billion at year-end 2023, improving the net debt to adjusted funds flow from operations ratio to 1.5x from 1.6x, and maintaining approximately $796.0 million in available unused borrowing capacity while remaining in full compliance with all debt covenants Capitalization Table | ($ millions, except ratios) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Net debt | 3,582.9 | 3,738.1 | | Market capitalization | 6,858.8 | 5,697.2 | | Enterprise value | 10,441.7 | 9,435.3 | | Net debt to adjusted FFO | 1.5x | 1.6x | - The decrease in the net debt to adjusted FFO ratio was largely due to debt reduction from capital dispositions and excess cash flow generation[104] - The company has combined revolving bank credit facilities of $2.82 billion and had available unused borrowing capacity of approximately $796.0 million at March 31, 2024[105] Shareholders' Equity and NCIB As of March 31, 2024, Crescent Point had 619.0 million common shares outstanding, repurchasing 0.9 million shares for $10.0 million under its Normal Course Issuer Bid (NCIB) during the first quarter, with a new NCIB approved in March 2024 allowing for the purchase of up to 10% of the public float - The company purchased 0.9 million common shares for $10.0 million in Q1 2024 under its NCIB[114] - A new NCIB, effective March 11, 2024, allows the company to purchase up to 61,663,522 common shares for cancellation[113] Subsequent Events Post-quarter, the company announced a significant disposition of non-core Saskatchewan assets to further reduce debt - On May 6, 2024, after the quarter-end, the company announced the disposition of non-core Saskatchewan assets for $600.0 million, prior to closing adjustments[115] Guidance The company revised its 2024 production guidance downward due to asset dispositions, while capital expenditure plans remain consistent Revised 2024 Annual Guidance | Metric | Prior Guidance | Revised Guidance | | :--- | :--- | :--- | | Total Annual Average Production (boe/d) | 198,000 - 206,000 | 191,000 - 199,000 | | Development capital expenditures ($M) | $1,400 - $1,500 | $1,400 - $1,500 | - The production guidance was revised downward following the announced disposition of non-core Saskatchewan assets, while capital expenditure guidance remains unchanged[9] - The company maintains its return of capital framework, which includes a quarterly base dividend of $0.115 per share and a target to return 60% of excess cash flow to shareholders annually[130] Summary of Quarterly Results Quarterly results show fluctuating sales and net income influenced by commodity prices, M&A, and non-cash charges - Over the past eight quarters, oil and gas sales have fluctuated with commodity price volatility and changes in production levels from M&A activity and natural declines[121] - Net income (loss) has varied significantly due to impairment charges/reversals, unrealized derivative gains/losses, and gains/losses on dispositions[122] Selected Quarterly Data (Continuing Operations) | ($ millions, except production) | Q1 2024 | Q4 2023 | Q3 2023 | Q2 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | | Production (boe/d) | 198,551 | 153,551 | 149,739 | 131,465 | 118,035 | | Oil and gas sales | 1,107.9 | 946.7 | 998.7 | 791.6 | 762.0 | | Net income (loss) | (398.9) | 302.6 | 133.6 | 178.4 | 184.8 | | Adjusted funds flow | 568.2 | 535.1 | 548.6 | 453.4 | 438.6 | Specified Financial Measures This section provides definitions and reconciliations for non-GAAP financial measures used to assess the company's performance - This section defines and reconciles non-GAAP and other financial measures used throughout the MD&A, such as 'adjusted funds flow from operations', 'excess cash flow', 'net debt', and 'adjusted net earnings', noting these measures are used by management to assess performance and may not be comparable to similar measures from other companies[133][151] Reconciliation of Cash Flow to Excess Cash Flow | ($ millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Cash flow from operating activities | 411.2 | 473.4 | | Adjustments for non-cash working capital, etc. | 157.0 | 85.5 | | Adjusted funds flow from operations | 568.2 | 524.9 | | Less: Development capital, lease payments, etc. | (437.4) | (371.5) | | Excess cash flow | 130.8 | 153.4 |