Calgary 鈥� The days of spending 100 per cent of cash flow on capital expenditures appear to be long gone at Crescent Point Energy Corp., with its 2020 capital budget released on Jan. 14.
The company expects to generate approximately $200 million to $350 million of excess cash flow in 2020 at US$55/bbl to US$60/bbl WTI (West Texas intermediate), allowing for continued net debt reduction and accretive share repurchases.
In a release it noted its 鈥渄isciplined and returns focused budget centered in key focus areas and fully funded at less than US$50/bbl WTI.鈥�
The company鈥檚 annual average production guidance is set at 140,000 to 144,000 barrels of oil equivalent per day (boepd).
The company鈥檚 capital expenditures are expected to be $1.10 to $1.20 billion, primarily comprised of sustaining capital. Of that, 90 per cent is set for drilling and development, and the remaining 10 per cent is for facilities and seismic.
The company also spoke of advancing field automation and implementing a new supply chain pre-qualification process as part of continued focus on environmental, social and governance practices.
鈥淲e successfully completed our 2019 program on budget while also significantly strengthening our balance sheet through excess cash flow generation and accretive dispositions,鈥� said Craig Bryksa, president and CEO of Crescent Point. 鈥淥ur plans for 2020 will continue to focus on returns, capital discipline, cost saving initiatives and generating excess cash flow to further enhance shareholder value. We will also continue to seek opportunities to further optimize our portfolio, where appropriate, as part of our strategy to focus our asset base.鈥�
As of Jan. 15, the company, as usual, led the nation in drilling, with 16 rigs working in Canada, all but one working in Saskatchewan. It is expected to drill approximately 450 wells this year.
2020 Budget
Crescent Point's 2020 capital expenditures budget of $1.1 to $1.2 billion is primarily comprised of sustaining capital and is expected to generate annual average production of 140,000 to 144,000 boepd. This production range is unchanged from the prior year after incorporating approximately 30,000 boepd of dispositions executed in 2019.聽
A year ago, that budget was set at $1.2 to $1.3 billion, but the company had an average annual production of 170,000 to 174,000 boepd. Over the past year it has sold properties in southeast Saskatchewan and its Uinta Basin play in Utah.
Over 80 percent of the 2020 capital expenditures budget is allocated to four plays including the company's key focus areas and its North Dakota resource play. This appears to be a change from earlier plans, which spoke of selling off the company鈥檚 North Dakota properties. North Dakota was not listed as a key focus area in its September 2018 press release.
Crescent Point said its key focus areas in the Viewfield, Shaunavon and Flat Lake resource plays account for approximately 60 percent of the allocation, up from approximately 55 percent in 2019. These areas currently generate strong netbacks, attractive risk-adjusted returns, excess cash flow, and the opportunity to further enhance overall sustainability through additional cost efficiencies and decline mitigation programs. The company's North Dakota resource play also delivered strong operational performance and efficiencies in 2019, resulting in consistent capital expenditures in 2020.
Within Crescent Point's 2020 budget, approximately seven percent of its capital expenditures is 鈥減rudently allocated to long-term development projects, including decline mitigation programs such as waterflood.鈥�
The company plans to convert approximately 120 producing wells to water injection wells in 2020.
Share repurchase
Crescent Point expects to generate approximately $200 million to $350 million of excess cash flow at US$55/bbl to US$60/bbl WTI, which it plans to allocate to continued net debt reduction and accretive share repurchases. The company's budget will be flexible in the event of lower commodity prices and is fully funded at oil prices of less than US$50/bbl WTI, it said.
The company鈥檚 management continues to believe a strong balance sheet is essential in a cyclical commodity business, and said it will remain disciplined in its capital allocation, with approximately 70 to 80 percent of its 2020 excess cash flow planned to be allocated to net debt reduction. The remaining 20 to 30 percent will be directed to share repurchases, subject to returns and market conditions, in addition to $50 million of share repurchases from expected proceeds of the recently announced infrastructure asset monetization, which is on track to close in first quarter 2020.
Since implementing its normal course issuer bid ("NCIB") in first quarter 2019, Crescent Point has repurchased, for cancellation, approximately 25.3 million shares for approximately $130 million, up to and including January, 9, 2020, representing approximately five percent of its public float. The company intends to renew its NCIB in first quarter 2020.
As part of its risk management program to protect against commodity price volatility, Crescent Point has currently hedged approximately 50 percent of its oil and liquids production for 2020. The company plans to continue to layer additional hedges, when appropriate, to further protect its cash flow.
Crescent Point said it does not have any material near-term senior note debt maturities and retains significant liquidity on its covenant-based, unsecured credit facilities which are not due for renewal until October 2023.
Crescent Point said it was proactive in identifying and realizing internal cost efficiencies throughout the organization in 2019, including capital costs, operating, and general and administrative expenses. The company adopted digital technologies within its key focus areas throughout the year, which enhanced new workflow changes to realize reductions to its operating cost structure and benefits to its health and safety, and asset integrity programs.
These sustainable cost savings are in addition to benefits Crescent Point realized through dispositions executed in 2019 that further enhanced its overall netbacks and sustainability. As a result of these initiatives, the company's expected 2020 adjusted funds flow netback has improved by approximately seven per cent, including the impact of its recent infrastructure monetization, at a constant WTI price of US$55/bbl.
Crescent Point said it will continue to seek opportunities to further enhance its competitive position in 2020 through additional portfolio optimization, cost efficiencies and new market access opportunities.
