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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Production Now Priority For North America’s Busiest Oil Asset Buyer

Shale gas well

Canada’s Crescent Point Energy Corp—the North American oil and gas exploration and production company that has completed the highest number of acquisitions over the past five years—is now prioritizing organic production from its assets, rather than looking for more acreage to buy.

“We have more than 12 years of drilling inventory ahead of us,” Crescent Point’s chief executive Scott Saxberg told Bloomberg in an interview published last week.

Between 2012 and 2016, Crescent Point made 15 acquisitions, more than any other North American E&P company, according to Bloomberg data. In terms of money spent on acquisitions, the Canadian company paid a total of around US$6 billion on buying oil and gas assets, which ranked it fifth for acquisitions value in North America.

Now, Crescent Point is shifting priorities to grow production from the assets it has amassed, in order to control costs and pay down debt.

“We’re very focused on our organic growth, getting after our plays,” Saxberg told Bloomberg. “Anything we acquire will be small, tuck-in type acquisitions…and we’ll sell non-core assets to pay for them,” the manager noted.

Crescent Point’s largest operations are in Southwest Saskatchewan in Canada, and in North Dakota and Utah in the United States.

In the middle of Crescent Point’s spending-spree period, however, came the oil price crash that upended the plans of all oil companies, especially those in North America. Cash flows thinned, balance sheets weakened, and managers had to decide from where they could find funds—taking on more debt, cutting dividends, or raising equity that would dilute shareholders’ interests. Related: Four Charts That Explain OPEC’s Fall From Power

In August 2015, Crescent Point announced that it had decided to reduce dividend to not build debt, “with the significant decline in spot and forward curve oil prices since the end of June and a risk that this low price environment may be lower for a longer period of time.”

The lower-for-longer environment was still evident the following year, when in September 2016 the company issued common shares for gross proceeds of around US$475.5 million (C$650 million). Back then, Crescent Point said that it would use the proceeds to fund incremental growth capital expenditures in 2016 and 2017 and reduce bank indebtedness.

The share issue was not met enthusiastically by either the market or some shareholders, as they expected the proceeds to mostly go towards increasing production, but the company used most of the funds to pay down debts.

In the 2016 results released in February this year, Saxberg said: “We also issued $650 million in equity to pay down our debt and protect against the potential downside risk of uncertainty created by OPEC and the U.S. election.”

Crescent Point is also increasingly hedging production to mitigate risks. As of 20 February 2017, it had 39 percent of its 2017 oil production, net of royalty interest, hedged.

In the first quarter of 2017, it hedged an additional 3.8 million barrels of oil, and as of 24 April 2017, a total of 41 percent of the company’s remaining 2017 oil production was hedged, Crescent Point said in its Q1 2017 earnings release.

“Our focus in 2017 continues to be executing our organic growth plan and delivering exit production growth of 10 percent per share,” said Saxberg in the statement, which showed that Crescent Point returned to a net profit in Q1 2017, compared to a loss in Q1 2016, and increased cash flows from operations. Related: Oil Prices Are Where They Should Be

Analysts are mostly viewing Crescent Point’s Q1 2017 results as good, but caution that the company still needs to show continued drilling success within its resource base in order to convince the market that it is a worthy investment.

In the Q1 earnings release, Crescent Point’s outlook for 2017 stated that “with WTI prices in the mid-US$50 range, we expect to generate a total payout ratio of approximately 91 percent.”

But this total payout ratio—calculated on a percentage basis as development capital expenditures and dividends declared divided by funds flow from operations—may be a bit too optimistic, seeing where the WTI price is now.

By Tsvetana Paraskova for Oilprice.com

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