Crescent Point’s 2019 Capital Expenditure Plan Based on Flexibility

Crescent Point Production Guidance Satisfactory

  • Crescent Point Energy (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”CPG.TO” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) released its 2019 production and budget plan in mid-January, and reiterated that it is on track to meet its 2018 production guidance, with capital expenditures around $35 million lower than its prior forecast.
  • Crescent Point expects its 2019 capital expenses to range between $1.2 billion and $1.3 billion. That’s a reduction of 30%, or $500 million, as compared to 2018 levels, as management will focus on a disciplined capital allocation strategy, balance sheet improvements, cost reductions, and overall improved shareholder returns.
  • The massive drop in the capital expenditure won’t have a major impact on Crescent Point’s production profile for the year as the company’s average annual production will remain virtually flat year over year, after accounting for dispositions.

Stock Performance Tied to Oil Prices

  • Crescent Point will maintain its annual average production in the range of 170,000 to 174,000 barrels of oil equivalent (boe) per day this year, the mid-point of which is close to 2018’s 177,000 boe per day. Investors, however, should note that Crescent Point has disposed of 4,500 boe per day of production, and that won’t be included in its 2019 output.
  • Management has based the company’s 2019 budget assuming a West Texas Intermediate (WTI) oil price of $50 per barrel. The good news is that the WTI benchmark is well-above this mark at $55 per barrel, rising nearly 22% in 2019 so far. But if things go south and the WTI index falls below the $50 threshold, the company will make adjustments so that it can operate within its expected operating cash flow.
  • At a WTI oil price of $50 per barrel, Crescent Point estimates that it will generate $150 million that can be used for reducing debt and/or buying back shares. Moreover, the company also noted that its adjusted funds flow will be affected by $50 million for each $1.00 per barrel change in the WTI crude oil price. Crescent Point will use any extra funds that it generates from a higher oil price to increase shareholder value, likely through dividends, buybacks, or reduced debt.
  • Crescent Point expects to spend 10% less on general and administrative expenses this year as compared to 2018 levels.
  • Crescent Point will be able to maintain its production at last year’s levels despite lower capital outlay thanks to its strategy of spending money on key focus areas where risks are low and drilling returns are high.

Flexible Capital Expenditure Plan Leads to Stock Price Uncertainty

  • Crescent Point has a highly-levered balance sheet with more than $4 billion in debt and a thin cash position of just over $65 million. It will be important for the company to spend within its means to prevent taking on more debt and ideally reduce its existing burden.
  • The 2019 capital expenditure plan seems to have been designed keeping the massive debt-load in mind. If oil prices keep rising as they have in recent weeks, it won’t be surprising to see the company exiting the year with a lower burden. If they fall below the threshold, Crescent Point investors can expect the company to downsize the 2019 capital expenditure plan further.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


Please enter your comment!
Please enter your name here