Crescent Point Energy Corp.

Good morning ladies and gentlemen, my name is Joanna and I will be your operator for Crescent Point Energy's third quarter 2022 conference call. This conference call is being recorded today and will be webcast along with the slide deck which can be found on Crescent Point's website homepage. The webcast may not be recorded or rebroadcast without the express consent of Crescent Point Energy. All amounts discussed today are in Canadian dollars with the exception of West Texas Intermediate, or WTI pricing, which is quoted in U.S. dollars. The complete financial statements and management's discussion and analysis for the period ending September 30, 2022, were announced this morning and are available on the Crescent Point, CDAR, and EDGAR websites. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session for members of the investment community. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press star 2. During the call, management may make projections or other forward-looking statements regarding future events or future financial performance. Actual performance, events, or results may differ materially. Additional information or factors that could affect Crescent Point's operations or financial results are included in Crescent Point's most recent annual information form, which may be accessed through the Crescent Point, CEDAR, or EDGAR websites, or by contacting Crescent Point Energy. Management also calls your attention to the overlooking information and non-explanations that's affecting these issues. I'm going to call over to Craig Brooksett, President and Chief Executive Officer at Crescent Point. Please go ahead, Mr. Brooksett.

Thank you, Operator. I'd like to welcome everyone to our third quarter 2022 conference call. With me today are Ken Lamont, our Chief Financial Officer, and Ryan Gritzelt, our Chief Operating Officer. As the Operator highlighted, this conference call is being webcast along with the slide deck, which can be found on our website. Our third quarter results once again demonstrate how our continued focus on balance sheet strength and sustainability delivers value returns for our shareholders. In July, we successfully reached our near-term debt target and released our updated return of capital framework. This framework targets returning up to 50% of our discretionary excess cash flow in addition to base dividends. As a result of our continued operational execution and financial success, we are delivering on that promise. For the third quarter, we are returning 50% of our discretionary excess cash flow through share purchases and special dividends. Including our base dividend, our total return of capital for the quarter is about $140 million. Our return of capital framework is only part of our overall shareholder value proposition. We also have built a strong balance sheet and continue to enhance the sustainability of our business. In the third quarter, we reduced our debt by an additional $270 million and further optimized our asset portfolio. We disposed of certain non-core assets that had limited scalability and higher decline and emissions intensity profiles. In addition to using the proceeds from this disposition to strengthen our balance sheet, we also expanded our proposition in the KBOB Duvernay Plate by adding 80 net sections of undeveloped land and a considerable number of drilling locations for $87 million. We remain very excited about this play, which continues to generate attractive asset level returns within our portfolio alongside significant well results. As part of today's release, we are pleased to announce our formal 2023 guidance. We expect to generate significant excess cash flow of $1.1 to $1.5 billion at $75 to $85 per barrel WTI pricing. This budget is fully funded at less than $50 per barrel WTI, including our base dividend. Our guidance anticipates delivering significant shareholder returns while producing between 134,000 to 138,000 BUE per day, with development capital expenditures of $1 to $1.1 billion. In the current price environment, we expect to attain this production guidance while spending at the lower end of this guidance range. Under this budget, we expect to achieve a year-end 2023 leverage ratio of less than 0.3 times at U.S. $75 per barrel WTI. providing us with significant financial flexibility. We will stay disciplined in our capital allocation and remain committed to our key pillars of balance sheet strength and sustainability. Before moving on, I'd like to thank our employees for their continued hard work and execution during the quarter and throughout the year. With that, I'll now turn the call over to Ken to discuss our financial results. Thanks, Craig.

For the quarter ended September 30th, adjusted funds flow totaled $577 million. or $1.02 per share fully diluted, driven by a strong operating net back of over $59 per BUE. Our net income for the quarter was $466 million, or $0.82 per share. Development capital expenditures, which include drilling and development facilities and seismic, totaled $309 million, resulting in excess cash flow generation of $234 million in the quarter. Our discretionary excess cash, or excess cash less our base dividend, totaled $189 million, of which 50% is being returned to shareholders through our buyback program and a special dividend. During the third quarter, we repurchased 8.2 million shares at an average price of $9.16 per share, and we have declared a special dividend for 3.5 cents per share, payable on November 14, 2022. We remain active on our buyback program given the underlying value of our shares, and have already repurchased 3 million shares during the month of October at an average price of $9.80 per share. In addition to the return of capital offering, we continue to direct a portion of our excess cash to our balance sheet, as of September 30, 2022, our net debt was $1.2 billion, reflecting approximately $270 million of debt reduction in the quarter. We remain disciplined in our hedging strategy in the context of market conditions. For 2023, we have hedged approximately 15% of our total production, including over 20% in the first half of the year. I will now turn the call over to Ryan as he speaks to our operations highlights. Ryan?

Thanks, Ken. We continue to achieve strong operational success across our asset base in third quarter. Our Q3 average production was 133,019 VOE per day, comprised of over 80% oil and liquids. In our KBOB Duvernay play, we continued our strong operational execution with exciting well results and an efficient drilling program. We recently brought on stream our third fully operated multi-well pad in the Duvernay. This pad had an average IP30 rate of approximately 900 BUE per day per well with over 85% liquids, providing attractive returns in a payout period of approximately six months from the initial on-stream date at current commodity prices. Our drilling efficiency also remains impressive, averaging only 14 days per well in our most recent operated pad, which we believe makes us a pacesetter in the basin. As Craig mentioned, we acquired 80 nest sections of land in KBOB, which further enhances our drilling inventory in the play, and our current plans have us drilling a pad on these lands later in 2023. Based on our continued execution, the attractive returns we have achieved, and significant running room to develop our assets, We now expect to grow our KBOB production in a disciplined manner from approximately 35,000 VUE per day in 2022 to over 50,000 VUE per day by 2027, subject to commodity prices. Our continued success and ongoing innovation in KBOB is emblematic of the knowledge transfer, corporate culture, and can-do attitude that our employees apply across all of our plays. Our operating team strongly believe that there is always further value to unlock and efficiencies to be gained even in our more mature plays. For example, in our Viewfield Bakken play, we drilled our first multilateral open hole horizontal well and are now drilling a second based on the success of the first. By adopting a new well design, we have removed the need for fracture stimulation in these multilateral horizontals, expanding the economic boundaries of the play. We also continue advancing our decline mitigation projects throughout our Saskatchewan operations, to enhance secondary recoveries and moderate future capital requirements. In third quarter, we initiated a polymer flood as a tertiary form of recovery within a unit of our Shawnavan play and are encouraged by early results. For the fiscal year 2022, we are on track to achieve annual production guidance at the midpoint of our range of 132,000 BUE per day. We have revised our 2022 capital expenditures guidance to $950 million, from our prior range of $875 to $900 million. The revision reflects a higher inflationary environment and our decision to maintain an active drilling rig in our DuVernay and North Dakota plays, where we are currently ahead of our drill schedule thanks to efficiencies we've achieved. As Craig highlighted, we continue to allocate capital in our 2023 budget based on risk-adjusted returns and sustainability. The budget focuses on the company's four major operating areas, with approximately 15% directed to long-term projects such as various decline mitigation programs and environmental initiatives. Our ESG approach is ingrained into everything we do at Crescent Point, and our continued efforts are being positively recognized and showcase the tangible progress we are making. In third quarter, we received an upgraded MSCI rating of AA, which is the second consecutive year that we've received an increase in our ESG ratings assessments. I'd like to thank all of our teams for their commitment to our success, and in particular, thanks to our field staff for all their hard work in safely achieving our goals. I'll now turn it back to Craig for some closing comments.

Thanks, Ryan. At Crescent Point, we take great pride in our operational excellence and creating outstanding value for our shareholders. Our 2023 budget reflects our disciplined capital allocation and commitment to generating excess cash flow and delivering meaningful returns to our shareholders. In addition to setting our 2023 budget, we have also updated our five-year outlook, where we expect to generate up to $6 billion of cumulative after-tax excess cash flow at $85 per barrel WTI pricing. Our disciplined five-year plan assumes production growth to approximately 145,000 BUE per day by 2027, subject to commodity prices with a continued focus on returns and sustainability. Our growth is expected to be driven by our KBOB DuVernay asset, where our returns continue to rank in the top quartile across our asset portfolio. Our teams remain focused on further enhancing these returns with ongoing efficiencies and optimization. Before taking questions, I'd like to thank our shareholders for all their support and continued engagement. Operator, you can now open the call for questions.

Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star followed by one. First question comes from Michael Harvey at RBC Capital Markets. Please go ahead.

Yeah, sure. Good morning. So just a quick one from me on that multilateral, you drilled a view field. Is there any other colour you can help folks with on that? I know you mentioned strong performance, but anything like early production rates, well costs, that type of thing. And then just do you see that technology being applied across other lands, view field elsewhere, or is it just kind of a science experiment for now? Any colour? Much appreciated.

Yeah, thanks for the question, Michael. Yeah, so this is something that, you know, our teams have been looking at, you know, trying to figure out how to expand the economic boundaries of the play as you step out from the course. So, you know, with this, I think drilling has, the drilling technology has gotten so good that, you know, it's a little bit cheaper now to, to attack some of the areas in this play with just drilling instead of having to frack. So these multilaterals are obviously tighter space than our fracked wells. And if you look at total recovery and initial production from a section under these multilateral wells versus our conventional fracked well, you get higher production and higher reserves potentially for lower capital. You know, we're pretty excited about it. You know, it's early days, you know, 125 plus BOE per day per well. And, you know, if our production hangs in and it hits our EUR estimates, we probably have over 100 more locations to go and incorporate that into our five-year plan in Viewfield. And we are looking at other areas in our portfolio, i.e., like Shawnevan. Obviously, this area in view field has, you know, a little bit better porosity permeability maybe than, say, Shawnavant does. So early days still, but we will look to see if we can apply it throughout our other assets.

Gotcha. Thanks.

Thank you. Next question comes from Travis Wood at National Bank. Please go ahead.

Yeah. Good morning, guys. Two questions for you. First on just kind of broader themes around inflation, obviously kicked up 2022 a bit. What type of inflation are you baking in the 23 program and any kind of specific color you could share in terms of where you're seeing most kind of that inflationary pressure? And are you seeing that also in the Duvernay where you've made some

pretty big strides on on the efficiency gain but are you getting some pressure from from the service side in that place specifically as well yeah yeah so the so our new 2022 guidance of 950 million Travis is a seven percent bump from our previous midpoint and and really only a modest 10 bump um you know from the original midpoint way back at the start of the year so Uhm, you know we had to. We had to bump here. Obviously you know some inflationary costs and we've been drilling a little bit faster in cable of in North Dakota. Like I mentioned, so wanted to. Keep those rigs warm and and keep the momentum going into 2023. So added a few wells in those plays. So what we're going to what we're forecasting for 2023 is essentially the costs we're seeing right now. You know, say an $85 WTI. environment, which, you know, I think is a good forecast overall. You know, I think costs, you know, we've seen a little bit of bump in drilling day or drilling rig day rates. You know, casing is starting to flatten out a little bit. Obviously, that was a big cost that hit us on the inflation side. Um, and obviously, obviously plays that are a little bit deeper, you know, like KBOB North Dakota that requires more casing, uh, you know, more fracking, obviously fuel costs hit us. So, um, you know, I think those were the areas, you know, where we saw some increases, but, you know, I think using, using these costs right now in an $85 WTI world for next year is, is where we're forecasting our costs at.

And then Travis Craig here, and thanks for the question just to add on that. So, when you look at our, our 2023 guidance, we're in that 134 to 138,000 per day range. We're going to spend in the neighborhood of that 1.1 or sorry, 1 to 1.1Billion dollars. And and keep in mind, we built in all those inflation assumptions. and are trending towards the lower end of that right now as things are looking out. And then the highlight for that is if you apply an $85 price stack to that, it's $1.5 billion of excess cash flow. So, you know, we're feeling really good with how things are setting up into 2023 on the back end of coming out of a strong 2022.

Okay, perfect. Thanks to both of you for the great color. And then last question separately. the return of capital framework. I think we ask this question every quarter, but just in terms of, you know, how should we think about how active you'll be with the NCIB, just as we can try to telegraph, you know, the impact of that variable going forward. And should we just assume that, you know, the full 10% of the NCIB gets done on kind of that 12 month rolling basis, just broadly, how are you, how are you thinking about the balance of those two?

Yeah, so thanks for the question, Travis. So, you know, one of the things we're really happy to put on July was that return to capital framework and getting that out to the market. And then in Q3, it's nice to be executing against that and demonstrate to the market, hey, we said this, now we're doing it. For us, when you look into Q4 and beyond, you know, we're applying that 50% of excess discretionary cash flow being returned to shareholders. And I would say, Travis, the bulk of that is, in this environment with our shares trading, how they trade is being targeted towards share purchases and buybacks. And then there is going to be some of that that does come out in a special dividend. Keep in mind, we're navigating a quarter live. We're actively in the market buying back shares every day, but you've got some volatilities in the commodity price that you're working through when you're trying to hit that 50%. So for us, we target the bulk of it towards the share purchases. And then to ensure that we hit that 50% at the end of the quarter, we use the difference there is being cleaned up with that special. So look for Q4 to be very similar and then look for us to behave very similar as we get into 2023 on that. Ken, I don't know if you know. Fair enough.

That's perfect. And then maybe just one follow on there, if I may.

Sure.

The 50%, like as you seems rapidly get to the debt target, do you see a scenario where that 50% starts to be expanded out?

Well, so that's a good question, Travis, and we get that one a lot. I think when you look at our total return proposition to shareholders, we're above the 50% if you layer in the base dividend, right? And ideally, we continue to grow that base dividend over time as our balance sheet gets stronger and stronger and we continue to grow our cash flow per share. um and keep in mind our base dividend is very sustainable it's only a 15 simple payout at 50 so it it does speak to the sustainability and the ability to continue to grow that so you know for us i think uh and we think as as management team in the board here crescent point that 50 is a is a very compelling strong return on that discretionary funds flow especially when you add in the base dividend and then that other 50 is going to stay stay internal here for us to continue to reinvest in the business and whether that's some type of organic growth, layering a bit more capital here into a bit of organic growth or in the event of an acquisition where maybe it's some inorganic growth. And then at the same time, there's also continuing to strengthen that balance sheet and to leverage even further. So we'll I never say never, Travis, but for us, the 15% to reinvest in the business for us right now seems to make sense. Okay.

Thanks so much for all the great color. Appreciate it. That's all. Thanks, Travis. Thank you.

Next question comes from Patrick Rourke from ATB Capital Markets. Please go ahead.

Hey, good morning, guys. A short question from Travis there that's kind of what I was going to ask and allude to here with the balance sheet looking to sort of extinguish the debt in 2024. Just wondering, you know, you mentioned not going above the 50% excess cash flow distribution to shareholders. Wondering how you think about managing the base level of debt for the business. Is the goal to extinguish it completely? Or is there an ideal amount of leverage that you would like in the capital structure here?

Sure. It's Ken here. I'll take that question. So, yeah, we do have a bit of an ideal or target leverage that we're shooting for. And I would say it's kind of a one-time step to cash flow in that $45 to $50 WTI range. And that's really, you know, in the long run, what we're shooting for as far as a target. There will be periods of time where we potentially are under that ideal or target leverage, maybe as commodities run up, things like that. But there may be also times where we're slightly above that. And it sort of goes back to Craig's comments earlier around the cash that we're retaining in the business. I mean, obviously, that's balance sheet strengthening. But, you know, there's opportunities on both the organic side with our plays as well on the inorganic side. And so, you know, we think this is a prudent way to run the business and a sustainable way to run the business. And so that's a bit of the target and how we'll look to operate. But obviously, you know, we're not going to – it's more of a target level. And as I said, sometimes we may be above, sometimes maybe below that target. But that's how we're looking to manage it, so.

So if we just kind of take flat base case assumptions here, that puts us into a range of somewhere between say four and $600 million in excess cash flow, not needed for the balance sheet in 2024. Do you see a greater opportunity set for organic growth within the portfolio now, or is it sort of deploy that and be acquisitive and use that cash to enhance per share return?

Yeah, I think what you're seeing from us now, Patrick, on the 2023 budget, it's pretty much set right at that $134,000 to $138,000 per day. That excess cash flow that comes in, or the 50% of the discretionary cash flow that we're keeping internally, that'll be to continue to strengthen the balance sheet during that time period. And then again, as you look out into the five-year plan, which we put out, we We see the business grow into that, call it approximately 147,000 or 145,000 BV per day over the next five years. And that is what I would describe as discipline managed growth over that time period. But again, the focus on that free cash flow generation. So that excess amount we'll use in the organization to look towards maybe some inorganic growth, maybe some organic growth, or then again, just further strengthen that balance sheet.

Okay, thank you. Thanks, Patrick.

Thank you. Next question comes from Chris Sakai from Singular Research. Please go ahead.

Hi, Craig. Good morning. Just a question on the company's hedging strategy for 2023. It looks like 15% of total production is hedged. Can you provide some color on that? And would that increase or decrease going into the fourth quarter?

Yeah, I think, you know, if you look at Crescent Point, historically, we've always been hedgers, Chris. So we do have a little bit of a hedge book being built out. And it really protects our fixed costs and our base level dividend in a downward commodity environment. What you've seen from us in the past has typically been somewhere around that 40 to 50% of our base production hedged out. For us, as we look forward into 2023 and our balance sheet being significantly improved and our financial position being significantly improved, we don't feel we need to go to those levels of the 40 or 50. So look for us to carry a bit of a hedge book. We will. I'd look for it to be in that range of call it 20 to 25-ish percent. And right now we're looking at generally going about 12 months out. So right now we're looking into Q3 and into Q4 and slowly building up that book. We do have targets in the market, and as the market moves into those levels, we bump into it daily to get towards those levels. So you can look for us next year on average to carry somewhere in that 20-ish percent range. The other thing I'd say to Chris is to a choice right now has been callers, where you have the absolute protection in a downward commodity price environment. At the same time, it allows you to participate in some of that upside. So we will have a book. It'll probably be in that call it 20-ish percent range. Mainly using callers right now and then looking out roughly 12 months because, you know, you've got some pretty significant backwardation in that curve.

Thanks for that.

And then you talk about KBOB Duvernay expansion. You guys bought, what, 87 million of land. Is there any plans in the future for buying more, even more land?

Yeah, so during the quarter, we did do a small deal with another producer in the area. We picked up 80 net sections for right around that $87 million. I mean, we're excited about it. It fits right in with our asset base or our land position right in there. So it adds kind of that three to four years of drilling inventory. So for us, it's a good addition for what we see as a very reasonable price. You know, that being said, Chris, if there's other things out there that make sense for us to look at, we certainly would, whether it's an acquisition or a bit of a land pickup here and there, we certainly would. And, you know, that gets back to the question earlier there on Patrick with us maintaining that 50% of that discretionary cash flow. It gives us the ability to then invest within the business and into that organic or inorganic. So certainly we would, but very happy to have executed on that one in the quarter.

Okay. Thanks, Craig. Thanks, Chris. Good talking to you.

There are no further questions at this time. I will turn the call back over to Craig Brixa for closing comments.

Thanks, everyone, for joining our call today. If you have any questions that were not answered, please call our investor relations team at your convenience. Thanks again, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.