Crescent Point Energy CP (CPG)

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Crescent Point Energy (tsx:CPG) is a southern Saskatchewan and south-central Alberta focused oil (mostly light & medium but also crude) and natural gas producer, developer and explorer first established in 2001 (incorporated in 2003).^[1] The company also engages in oil and gas exploration in the USA (Montana, North Dakota) and British Columbia.^[2] 2P reserves represent only a fraction of the total in place resource base (340 million boe versus 10-30 billion in place). per barrel of oil produced, royalties on average cost the company an amount equal to operating expenses (although royalties have more recently increased for two main reasons; 1: Newly acquired land/provincial government changes in royalty requirements 2: the company's revenue has increased substantially (higher sales mean higher royalty payments). Total royalties are comparable to total operating costs (between 10 and 12 dollar per barrel, each). Through a recent acquisition (Ryland Oil) Crescent Point also owns land in North Dakota where it engages in light oil exploration. In the first three quarters of 2010 it spent a total of $952.3 million on acquisitions (acquisitions are a central part of its growth plan). As of the end of 2010 ten of the company's properties were producing 7 of which were in Saskatchewan, 3 in Alberta. It also has a liberal hedging policy which aims at hedging up to 65% of production net royalties; in 2009 54% of crude oil, 15% of gas production was hedged, combined it was 49%. Unlike many domestic competitors, most of Crescent's resource base is in Saskatchewan. Average production climbed to 66,112 boe in the second quarter which is 20% higher than the Jan-March period of 2010 90% of the production being oil (up from 89% in 2010); oil 59,390 bbls/d, gas 6,722 boe/d. The company had added incentive to shift over to oil with oil process rising 33% in the period (up to 94.87/bbl) compared to 0% for natural gas ($4.11/mcf).^[3]

Most of the natural gas containing properties are in Alberta while the oil (light and medium grade) is mostly in Saskatchewan. The company's largest assets by far are in Saskatchewan, the biggest one in Alberta is John's Lake (30 Mboe of natural gas). Heavy oil only makes up about 1% of 2P reserves. Total 2P reserves are enough to keep the company producing at its 2011 estimate rate for 30.5 years (at 72,500 boe/d).^[3][1] Undeveloped properties contain about 52 million boe of probable reserves. the company's 2 largest 2010 acquisitions added 10,300 boe/d to production^[2][4]

The company's growth has been solid for a number of reasons; it has lots of cash, lots of credit (including a $721 million bank line even after making a billion dollars worth of acquisitions during 2010) allowing it to expand relatively easily without having to rely on organic growth; much of its multibillion boe total resource base is light and medium grade oil which is relatively easy to extract and process; large resource base and increasing oil price (about half of production is hedged and hedging price are at near record highs) means organic growth can be maintained for the near term.

It was formerly a trust but that changed by the end of 2010 when the Canadian government took away the incentive to be a trust (corporations and trusts didn't really differ in taxes anymore). Almost all of Canada's oil and gas companies recently converted to corporations (all except for Inter Pipeline Fund).

Operations production and reserves

It been meeting many of its own estimates; in mid 2009 the company planned on raising production to 51,500 for the year; it ended up meeting that goal (surpassed 52,500 boe/d in the 4th quarter that year). By 2010 quarterly production peaked in the January to March period, averaging about 65,000 boe/d (last quarter of 2010 though production had decreased slightly to just under 60,000 boe/d). In its 2011 January presentation Crescent had a stated goal of 72,500 boe/d for the 2011 fiscal year.^[1][5] 2011 production is estimated at 72,500 boe/d of which 65,375 is oil and NGL's, the other 10% natural gas.

It has also done a great job at replacing production (in 2008 226% of the production was replaced by adding more 2P reserves). In 2007 the 9 acquisitions made by the company increased production by a combined 12,400 boe/d and 2P reserves by 50.4 million boe. 2P reserve life index was 13.3 and 14 in 2007 and 2008 respectively, about 40% as much as it is today (2011).^[6][7]

In addition to the following key assets there are a number of other sizeable properties (projects) undergoing exploration and development (for example at its biggest asset Viewfield, Saskatchewan, only about a quarter of drilling locations (643 of 2,750) record 2P reserves. Current production (January 2011) is around 60,000 boe/d. Per well production has also increased, from 88 to 120 boe/d.^[1] Original Oil In Place includes recoverable and unrecoverable resources. Possible reserves, 2P reserves and proved reserves are 649 million boe, 339.8 million boe and 222.5 million boe respectively (January 2011).^[1]

• Viewfield, Sask (Bakken oil field) - largest resource among all properties (4.6 billion in place, 274 million possible reserves). It contains light oil; at the end of 2009 2P reserves were 119.4 million barrels. In 2009 2P reserves in the Bakken oil field increased 70% (by 83.6 million), the acquisition of Shelter Bay in 2010 added substantially to that.
• Shaunavon, Sask - 4.3 billion in place/249.6 million possible, medium grade oil resource that produced 7,000 boe/d in 2009. 2P reserves of 60.1 million in early 2010.
• Cantuar, Sask - medium grade resource with about 500 million barrels in place, 2P reserves went from 10 million in 2006 to 17 million in 2009.
• Battrum, Sask - 352 million barrels of mid grade oil in place (only about 25 million barrels of it was considered possible reserves in January 2011, though that's significantly higher than 2006 (140-200%).
• Tatagua (80% interest) - 230 million in place/10.1-14 million considered possible, medium grade oil.
• Manor, Sask - light oil (147 million barrels in place as of 2011, with less than 10 million in possible or 2P or reserves).
• Dodsland/Plato, Sask - light oil asset acquired in 2009 when Crescent took over Wave Energy Ltd. and TriAxon Resources Ltd.
• Alberta - John Lake (180 billion cubic feet of natural gas in place, 82% working interest), Sounding Lake (16 million boe probable reserves of medium oil with some natural gas, ownership at 90%, the only downside to the property is that its total resource is relatively small (58 million barrels), Worsley (96%, oil and natural gas).

2011 2nd Qtr Production

Average production climbed to 66,112 boe in the second quarter which is 20% higher than the Jan-March period of 2010 90% of the production being oil (up from 89% in 2010); both crude oil and natural gas recorded higher numbers, oil up to 59,390 bbls/d, gas up to 6,722 boe/d. The company had added incentive to shift over to oil with oil process rising 33% in the period (up to 94.87/bbl) compared to 0% for natural gas ($4.11/mcf). Annual guidance is at 72,500 boe/d with end of year production rate forecast around 76,500 boe/d. capex in the quarter was $108.9 million.^[3]

Acquisitions

Making frequent acquisitions is part of the company's strategic growth plan - very rarely does it divest assets. August 2009 was the biggest month for acquisitions in company history, late that month it paid $665 million for Saskatchewan centered Wave Energy Ltd. and another $258.9 million for unnamed assets (two agreements). The $258.9 million deal gave it 3,750 boe/d of crude oil (2,750) and natural gas (1,000) producing assets. It financed part of that with a $230 million equity offering issued September 15, 2009, involving 6.67 million common shares. Most recent acquisitions are (2010)

July 2 - It acquired Bakken light oil play (specifically Viewfield Bakken) company, Shelter Bay July 2, 2010 for $200.4 million (Crescent Point was already managing and operating Shelter Bay's assets since January 11, 2008 for a management fee of between $3.2 to 4.5 million annually). That deal increased in place oil resources held by the company in the Bakken region to 4.6 billion barrels and possible reserves to 274.4 million barrels (comparable to Shaunavon which was its biggest reserve asset before the takeover) and raised production by 7,400 boe/d.^[4] Crescent's first entered the Bakken oil play in 2006 when it acquired Mission Oil & Gas.^[5]

July 5 - bought a private oil and gas exploration company for $95.6 million. The company with light oil assets in Southern Alberta had $105.1 million worth of long term debt at the time.

August 2 - $116.3 million takeover of Ryland Oil Corp. a public company with assets in SE Sask (Flat Lake; Crescent Point already operates in the area) and North Dakota.

January 15, 2010 - Land base in SE Sask increased significantly after it purchased assets from Penn West Energy, financed in part by the subsequent sale its 100% interest in the Pembina Cardium play to TriAxon Resources Ltd. After both deals were made Crescent Point added $443.6 million worth of property, plant and equipment.

Business and Financials

Because of the great potential of the Viewfield region (almost 5 billion barrels of in place light oil; light oil means its easier to extract/process and demands a premium market price) Crescent has set aside 62% of its 2011 capital spending for development of locations there. In January 2011 Crescent had a bank line of $725 million.

2011 First Half

On August 11, 2011 Crescent Point announced outstanding results in the 2nd quarter ended June 30, 2011; funds from operations up 68% in the quarter (56% in the half to C$608M), profit/net income up 158% in the qtr to C$184.9M (but down 25% in the half to C$82.7M because the first quarter reported a loss of over C$100M). Higher number of shares meant that per share growth was not as pronounced (funds: 26% 2qtr/24% for the half, profit 106% 2qtr).^[3]

Royalties

Royalty holidays connected with new wells in Saskatchewan (3rd quarter 2010) caused royalties as a percentage of sales to fall 2%. Because of movement in the market price of oil and gas, higher production isn't directly proportional to royalty payments (evidenced by the first quarter of 2010 when the company produced at a rate of 65,548, 11.3% higher than the entire 2010 nine month period when royalties cost it 1.3% more per boe. The royalty changes overall don't suppress company development (when revenue increased 65% in 2010 9 month period, royalties as a fraction of revenue didn't change (stayed at 17.2%).^[4]

Competition

The company competes domestically with other Canadian companies many of which are of a comparable size. They are Penn West Energy in Sask and Alberta, Cenovus Energy in Saskatchewan, Vermilion Energy in the Bakken oil field, Baytex Energy in Dodsland, Saskatewan, Petrobank Energy in Bakken and Cardium (sold in 2010), Penn West Exploration in Southern Saskatchewan; Penn West was the biggest oil and gas trust in North America before renouncing the title of trust at the end of 2010.

Trends & Forces

Saskatchewan is home to 27% of Canada's conventional oil reserves

Virtually tied in second place with Newfoundland, Saskatchewan is home to about 69% as much conventional oil (2P reserves) as Alberta. In contrast, when unconventional sources are included Alberta's share of reserves increases to 98%.^[8]

References

1. ↑ ^{1.0 1.1 1.2 1.3 1.4 1.5} Crescent Point Energy Corp 2010 Annual Report (January 2011).
2. ↑ ^{2.0 2.1 2.2 2.3 2.4 2.5 2.6} Crescent Point Energy 2009 Annual Report (2010).
3. ↑ ^{3.0 3.1 3.2 3.3 3.4 3.5} Crescent Point Energy Corp. Announces Second Quarter 2011 Results (August 11, 2011).
4. ↑ ^{4.0 4.1 4.2 4.3 4.4} Crescent Point Energy 2010 Third Quarter Report (2010).
5. ↑ ^{5.0 5.1} Crescent Point pays $665 million for Wave Energy (2009-08-24).
6. ↑ ^{6.0 6.1} Crescent Point Energy 2009 Annual Report (2009).
7. ↑ ^{7.0 7.1} Crescent Point Energy 2007 Annual Report (2008).
8. ↑ NEB Canadian Energy Overview 2007 (2007).