Coming as yet another hammer blow to the industry, Crescent Point Energy Corp. is dramatically cutting its capital expenditures for 2020.
The oil and gas producer, one of Saskatchewan’s two largest, made the announcement before markets opened Monday.
Crescent Point is revising its 2020 capital spending by approximately 35 per cent in response to the recent decline in commodity prices. It said, “This conservative and disciplined approach demonstrates the company’s flexibility, focus on returns and prudent risk management to protect its balance sheet.”
“Our original plans for 2020 centered on returns, capital discipline, cost savings initiatives and balance sheet strength,” said Craig Bryksa, president and CEO of Crescent Point. “Given the recent severe volatility in the near-term outlook for commodity prices, we have adjusted our program to support those same priorities. We expect to fully fund our 2020 program within cash flow, assuming a WTI price in the low US$30/barrel range for the remainder of the year.”
Less than two weeks before, the company announced its 2019 financials, with an email saying “Crescent Point exits 2019 in a much stronger position.”
On March 5, Crescent Point said: “Annual average production in 2019 was 162,230 boepd (barrels of oil equivalent per day), which was at the mid-point of the company’s guidance range and was comprised of approximately 91 per cent oil and liquids. Average production during fourth quarter was 145,191 boepd, reflecting the impact of asset dispositions executed during the quarter.”
At that point the company said: “The company remains on track with its 2020 budget, which remains unchanged, with annual average production of 140,000 to 144,000 boepd and capital expenditures of $1.10 to $1.20 billion.”
On March 16, the price of West Texas Intermediate oil dropped in morning trading to US$28.54 per barrel, down US$3.18, or 10 per cent. Crescent Point’s March 16 revised 2020 capital expenditures budget of $700 to $800 million is expected to generate annual average production of 130,000 to 134,000 boepd. This guidance reflects a “high-graded, lower activity budget with fewer wells drilled. This program is expected to moderate the company’s corporate decline rate and reduce variable expenses while also protecting the long-term value of its drilling inventory.”
The revised program will begin immediately with minimal activity in second quarter, driven by normal seasonality related to spring break-up, with the majority of remaining activity expected to resume late third quarter. Management will continue to monitor the outlook for commodity prices during this period of reduced activity and has the ability to make further adjustments if necessary.
Crescent Point’s new budget incorporates additional operating and capital cost efficiencies realized during first quarter 2020 through the continued adoption of digital technologies and workflow optimization on top of successful drilling, completion and facility cost reduction initiatives. The company is targeting further improvements to its cost structure throughout the year, which have not been incorporated into its updated guidance.
Crescent Point is also revising its dividend to provide additional flexibility in the current environment, essentially taking it as low as it can go and still declare a dividend in the year.
After payment of the first quarter dividend of CDN$0.01 per share payable April 1, 2020, as previously announced, the company intends to change to a quarterly cash dividend that equates to CDN$0.01 per share per year. Crescent Point is also deferring share repurchases under its normal course issuer bid with flexibility for it to be resumed as market conditions warrant.
The company has over 50 per cent of its revised oil production guidance hedged for 2020 at attractive prices which are expected to provide approximately $325 million to $350 million of gains for the year if WTI remains at US$30/bbl to US$35/bbl for the remainder of 2020. Crescent Point does not have any material near-term senior note debt maturities and currently retains significant liquidity of approximately $2.7 billion of cash and unutilized capacity on its credit facilities which are not due for renewal until October 2023. These credit facilities are unsecured and not subject to periodic revisions due to changes in reserve values.
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