Veren Inc. (VRN) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is Ludy, and I'll be your operator for Crescent Point Energy's Conference Call regarding its Alberta Montney consolidation. This conference call is being recorded and will be webcast along with a slide deck, which can be found on Crescent Point's website home page. The webcast may not be recorded or rebroadcast without the expressed consent of Crescent Point Energy. All amounts discussed today are in Canadian dollars, with the exception of WTI pricing, which is quoted in U.S. dollars. 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 SEDAR+ or EDGAR websites or by contacting Crescent Point Energy. Management also calls your attention to the forward-looking information and non-GAAP measures sections of the press release issued earlier today. I will now turn the call over to Craig Bryksa, President and Chief Executive Officer at Crescent Point. Please go ahead, Mr. Bryksa.

Thank you, operator. I'd like to welcome everyone to the call as we discuss our strategic Montney consolidation transaction and our future outlook for the company. This is an exciting day for our company as this announcement is a highly strategic piece of our portfolio transformation. From a strategic perspective, this transaction provides us with a deep inventory of premium drilling locations, further enhancing our long-term organic growth profile, a significant amount of owned infrastructure with unutilized capacity, and long-term contracts that are already in place to ensure adequate market access for future production growth. In addition to these strategic benefits, this transaction is immediately accretive to shareholders, including adjusted funds flow and excess cash flow per share. This transaction also enhances our long-term outlook with our excess cash flow and return of capital per share, increasing by over 15% on average throughout our 5-year plan. We also expect to benefit from the operational synergies given the similarity and proximity to our existing Alberta Montney assets. Through this transaction, we will control approximately 350,000 net acres in the Alberta Montney, making us the largest landowner in the volatile oil fairway in addition to already being the largest landowner in the condensate-rich Duvernay play. Our increased scale is also expected to result in Crescent Point becoming the seventh largest Canadian E&P. Through this deal, we will transform into a Montney and Kaybob Duvernay focused company with complementary long-cycle assets in Saskatchewan. Since our entry into the Montney, we have achieved strong well results that continue to rank among the most productive oil and liquids wells in all of the Western Canadian Sedimentary Basin. This is due to the attractive and consistent geological characteristics within our land base, including significant net pay which we have leveraged with our optimized well designs, employing our deep technical expertise and history of operating in similar resource plays. In terms of asset quality, the lands we are consolidating are contiguous to our existing holdings, with similarly attractive geological characteristics in terms of net pay and comparatively high pressures. These lands, which total approximately 105,000 net acres are also primarily Crown lands with favorable royalty rates and have a high working interest of primarily 100% with limited expiry concerns. As part of this transaction, we expect to realize meaningful financial and operational synergies in the near term through lower G&A expenses and capital costs. We will focus on unlocking additional value over time, including optimizing the number of wells drilled per section. Strategically, these assets are situated in the volatile oil window, resulting in a high liquids weighting, impressive netbacks and strong excess cash flow generation for the company. This acquisition firmly aligns with our strategy of focusing on high-quality resource plays that meet our asset criteria based on returns, scalability, excess cash flow generation and market access. Pro forma, our Montney production will increase by approximately 56,000 BOE per day in 2024 to 94,000 or nearly half our estimated 2024 annual average production of over 200,000 BOE per day. I'd like to take a moment to speak to the market access included in this transaction as we believe it is a key enabler for future growth from this asset. Leading up to this acquisition, Hammerhead made significant investments in strategic infrastructure to support their ambitious growth plans. This includes approximately $500 million in capital investments by Hammerhead since its inception to develop key infrastructure, including 6 oil batteries and compression facilities, gathering lines to all key plants as well as takeaway capacity and major water handling infrastructure, including about 25 water disposal wells. This infrastructure, which has significant unutilized capacity is expected to support our organic growth from these assets to over 80,000 BOE per day. This is further supported by the strategic marketing and transportation agreements that are already in place. In terms of our future organic growth, the acquired assets increased our premium drilling inventory by approximately 800 net locations. This represents an increase of over 70% to our current inventory of high-impact locations within the Alberta Montney and Kaybob Duvernay. Within these 800 net locations, only 1/3 are currently booked by independent resource evaluators allowing for future growth. Altogether, this transaction bolsters our short-cycle portfolio and significantly enhances our long-term sustainability, increasing our corporate premium drilling inventory to over 20 years. Given the significant steps we have taken to optimize and transform our portfolio over the past few years, our strategic priorities moving forward will focus on operational execution, balance sheet strength and increasing our return of capital to our shareholders. We look forward to continuing our strong track record of operational excellence to deliver enhanced asset level returns through cost efficiencies and productivity improvements as we execute on our organic growth program. To maintain our commitment to balance sheet strength, we have set a near-term target of 1x net debt to adjusted funds flow at mid-cycle pricing. At the end of 2024, we expect our leverage ratio to equate to 1.1x, assuming $80 per barrel WTI pricing. To reach this target, we intend to allocate 40% of our excess cash flow towards the balance sheet, while also maintaining our current allocation of the remaining 60% to shareholder returns in the form of dividends and share repurchases. We plan to increase this allocation toward shareholder returns over time as we further strengthen our balance sheet. Given the immediate accretion expected from this transaction, we plan to increase our base dividend by 15% to $0.46 per share on an annualized basis. This dividend increase is subject to Board approval and successful closing of the transaction. It's also expected to be effective with our first quarter 2024 dividend. As a result of this acquisition, we are increasing our preliminary 2024 annual average production guidance range, which is now 200,000 to 208,000 BOE per day with development capital expenditures of $1.45 billion to $1.55 billion. This budget is expected to generate excess cash flow of over $1.2 billion at $80 per barrel WTI pricing. Our revised capital expenditures budget for 2024 incorporates approximately $400 million of development capital associated with the newly acquired assets, which are forecast to grow from approximately 56,000 BOE per day in 2024 to 80,000 BOE per day within the company's 5-year business plan. In our efforts to capture this strategic opportunity, we have successfully structured an agreement that is highly accretive to our shareholders. Total consideration is approximately $2.55 billion, including $455 million in assumed debt. This transaction will be funded through a combination of Crescent Point shares, cash proceeds from a bought deal equity offering and new and existing credit facilities. The purchase price equates to approximately 3.4x net operating income at $80 per barrel WTI and a recycle ratio of approximately 2.2x based on our Proved plus Probable reserves, including future development capital. This transaction is expected to close in December 2023, subject to court, stock exchange and regulatory approvals and other customary conditions. As you can tell, we are very excited about the strategic consolidation opportunity and the future outlook for the company. We believe this acquisition solidifies the company's future outlook by establishing a dominant position in one of North America's premier reservoirs. This transaction is highly accretive for our shareholders and enhances our strategic position with infrastructure ownership and secured market access. It also enhances our scale, making us the seventh largest energy producer in Canada with a significant oil and liquids weighting of 65% and dominant positions in both the Alberta Montney and Kaybob Duvernay. I would like to thank our shareholders for their support and our efforts to transform our portfolio and position the company for success for the years ahead. Crescent Point's future is bright, and I believe our best days are yet to come. Thank you.

That concludes the Crescent Point Energy conference call. For more information, including the presentation shown today, please visit crescentpointenergy.com. Thank you, and have a good day.