Crescent Point Energy’s (CPG.TO) recent second-quarter results show exactly why the company is a resilient bet in the current oil market scenario as it managed to do well despite the end-market negativity. There was a lot to like about Crescent’s latest report, even though the stock didn’t move up and continues to languish after a solid start to the year.
Let’s take a look at the reasons why there’s a lot to like about Crescent Point and why you need to keep this oil stock on your radar.
Crescent Point’s key metrics are moving in the right direction
The weak oil pricing scenario has forced Crescent Point to become disciplined about its capital spending and cash flow preservation. The company delivered adjusted funds flow of $503.8 million during the second quarter, up slightly from the prior-year period’s funds flow of $500.3 million.
In fact, Crescent Point has managed to generate just over $1 billion in funds flow this year as compared to $929 million in the year-ago period. The company has also been able to pay down $450 million of its debt thanks to its strong funds flow generation and lower capital spending.
Crescent Point said that its second-quarter capital expenses were $166.2 million. This was $60 million lower than the company’s planned capital outlay for the quarter, and was significantly lower than the prior-year period’s capital expenditure of over $301 million.
What’s impressive is that despite this massive drop in capital expenses, Crescent Point’s second-quarter production came in at 172,476 barrels of oil equivalent per day. This was only a slight decrease from the year-ago period’s output of 181,818 barrels of oil equivalent per day.
As such, the company managed to keep its production at respectable levels even as it reduced its capital spending by a wide margin. More importantly, Crescent Point was also able to keep a handle on its cost profile. The company’s operating costs for the first half of the year came in at $400 million, which was $20 million below its original budget.
All of these improvements allowed Crescent Point to post adjusted operating net earnings of $146 million, or $0.27 per share, as compared to $102.7 million, or $0.19 per share in the year-ago quarter. Investors should note that this improvement in the bottom line was achieved even though the average realized price fell to $60.22 per barrel of oil equivalent as compared to $65.52 per barrel in the prior-year period.
Digging deep to ward off the weak pricing environment
Crescent Point has adjusted its outlook for the full year in the wake of the recent weakness in oil prices and in its quest to further reduce its debt. The company now forecasts production between 168,000 and 172,000 BOE/day, down from the earlier forecast of 170,000-174,000 BOE/day.
The capital expenditure forecast, however, remains unchanged at $1.2 billion to $1.3 billion. The lower output will be a result of the asset dispositions announced by Crescent Point during the second quarter. The company will now be focusing on those assets in Viewfield, Shaunavon and Flat Lake where it can generate stronger cash flow. According to Crescent Point’s press release:
“These resource plays provide low-risk, high return development opportunities with strong operating netbacks that were approximately 10 percent higher, on average, compared to the corporate operating netback during second quarter. These plays currently generate approximately $450 million of annual cash flow in excess of capital expenditures at US$55.00 /bbl WTI and benefit from waterflood programs that are expected to further enhance overall recoveries.”
So it makes sense for investors to keep holding Crescent Point stock as it can bounce back as soon as the oil price starts recovering.
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