Crescent Point (CPG) Valuation Update - May 13

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Crescent Point (CPG) Valuation Update - May 13

Post by dan_s »

CPG released Q1 results on May 12. Q1 production was 139,280 Boepd and their financial results beat my forecast.

I have updated my forecast/valuation model using the mid-point of their full-year production guidance for 2023 of 160,000 to 166,000 Boepd (75% oil & NGLs). My current valuation of CPG increases by $0.50US to $13.25US per share.

CPG closed on May 12 at $6.74US.

Key to my valuation update is the Spartan Montney Acquisition that closed on May 10, 2023 that added production of 38,000 Boepd (55% oil and NGLs). I have taken into consideration the temporary well shut-ins due to the recent fires in Alberta. Most of CPG's shut-ins were only offline for a few days.

Key comments the Company's press release:

"In late first quarter 2023, Spartan brought on stream a single well in the Gold Creek West area of the Alberta Montney play, which achieved an average 30-day initial production ("IP30") rate of approximately 1,900 boe/d (87% light crude oil, 2% NGLs and 11% shale gas). This well is currently exceeding booked type well expectations in the area and is expected to payout in less than six months from the initial on-stream date at current commodity prices. Crescent Point plans to drill approximately 15 wells in the Alberta Montney through the remainder of 2023. The Company will seek to optimize efficiencies in the play by leveraging its expertise in multi-well pad development and knowledge transfer across its asset base." < If well results in the newly acquired assets continue to be this good, CPG's 2023 production should exceed the top of their production guidance.

"Crescent Point expects to generate significant excess cash flow in 2023 of approximately $1.1 billion based on its guidance at US$75/bbl WTI. The Company's strong excess cash flow generation is supported by its high-netback asset base and is further enhanced by its significant tax pools. The Company plans to continue to return approximately 60 percent of its excess cash flow to its shareholders, with the remaining portion allocated to its balance sheet. Crescent Point expects to exit the year with a leverage ratio of 1.0 times adjusted funds flow at US$75/bbl WTI and will continue to evaluate non-core dispositions to further strengthen its financial position."

My valuation of CPG is based on just 4X annualized operating cash flow per share. That is a conservative multiple for company with a solid balance sheet, lots of running room, that pays a dividend and has a stock buyback underway.

TipRanks: "In the last 3 months, 8 ranked analysts set 12-month price targets for CPG. The average price target among the analysts is $10.56." None of the 8 analysts have updated their price targets for CPG since the company released strong Q1 results.
Dan Steffens
Energy Prospectus Group
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