Why Crescent Point Energy Is a Solid Investment Despite Weak Oil Prices

Crescent Point Energy (CPG.TO) has enjoyed an impressive run on the stock market this year despite a minor hiccup over the past couple of months on account of weak oil prices. The oil producing company’s stock is up nearly 15% so far in 2019, and its latest results were good enough to help it sustain the momentum.

Let’s take a look at what’s working for Crescent Point and where the company could be headed going forward.

An impressive operational performance

Crescent Point delivered a massive earnings surprise last quarter. The company posted a bottom line of $0.22 per share that was way better than the market’s expectation for $0.02 in earnings.

Crescent Point’s average production for the quarter came in at nearly 176 thousand barrels of oil equivalent per day, which was a slight dip over the prior-year period’s production of 178 thousand barrels of oil equivalent. Along with the slight dip in the production, Crescent Point also witnessed lower oil prices.

The company reported an average realized oil price of $56.35 per barrel of oil equivalent during the quarter as compared to $58.24 per BOE in the year-ago period. But despite the price and production headwinds, investors were pleased with Crescent Point’s performance as it managed to keep a handle on costs and improved profitability metrics.

Crescent Point’s adjusted funds flow from operations increased to $514 million during the quarter as compared to $429 million in the prior-year period. What’s more, the company delivered net income of $1.9 million as compared to a loss of $90.7 million in the year-ago quarter. Its adjusted net earnings from continuing operations more than doubled to $158.3 million as compared to $63.4 million a year ago.

The reason behind the improvement in these metrics can be attributed to the fact that Crescent Point’s capital expenditure during the quarter came in at $384 million as compared to $733 million in the prior-year period.

So, the company’s focus on keeping a tight control on its expenses was of great help last quarter, and it should aid its performance going forward as well.

More operational improvements in the cards

Crescent Point’s focus will be on improving capital efficiencies this year as the weak oil pricing scenario might continue. As a result, the company expects to generate approximately $600 million of excess cash flow in 2019 according to its current guidance.

According to the press release:

“The Company remains disciplined in allocating capital and excess cash flow, prioritizing net debt reduction, accretive share repurchases and generating returns versus production growth. Crescent Point is on track with its 2019 budget, which remains unchanged, with expected annual average production of 170,000 to 174,000 boe/d and planned capital expenditures of $1.20 to $1.30 billion.”

As a part of this strategy, Crescent Point has started disposing off some of its assets during the first quarter. This is a smart move from the company as it will be able to focus on only those assets that will help it generate value by reducing costs and keeping production levels strong. As such, don’t be surprised to see Crescent Point coming out unscathed of the oil pricing weakness.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
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.
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