Crescent Point (CPG) Update - Aug 29

[dan_s]

This is a note I received from Raymond James team up in Canada this morning.

Crescent Point (Montney): Crescent Point’s Montney well takes the top spot in the Montney again this month (looking at free liquids only) with total monthly production at 39 mbbls (days confidential). We’ll note Crescent Point had a small discussion point on this well within its Q1 report, indicating the IP30 rate was 1,900 boe/d (1,650 bbls/d + 1.5 mmcf/d). With now 4 months worth of data, this well has produced 195 mbbls (and still flowing at ~1,300 bbls/d) – and easily one of the most economic wells we’ve seen in the Montney for years.

This well is a substantial step-up vs. other rates seen throughout the region and reflects a change in frack intensity/design in how many other wells in the area were completed. With 300 follow-up locations in this volatile oil window, there is a large ‘Rate of Change ’ that investors should be aware about, that ultimately should lead to a multiple improvement. As seen with this month, Crescent Point takes 7 of the top 10 spots with other Montney wells in the region that came on in late June, with many showing IP rates all 1,000+ bbls/d (days confidential). As this production gets reflected in financial statements, we suspect CPG will attract new investors.

We find that share price performance is highly correlated to a change in valuation multiples (especially within the E&P group). When we discuss multiples, we are referencing an EV/PDP multiple. By taking the Enterprise Value less the Proved Developed Producing reserve value (PDP value), we can get an estimate of what investors believe a company's undrilled land inventory is worth (or the expected future growth that investors are willing to pay for today). We do this because an investor (for the most part) should be indifferent between the PDP reserve values of different companies (given the ability to hedge commodity risk away). As such, by looking at only the undrilled land value, we have isolated the largest component that makes up a company’s Enterprise Value and the most arbitrary value from a consensus/investor point of view.

The top/notable wells each month give an early indication of where this multiple could be changing. Within this report, we highlight key formations, top 10 wells from the latest monthly production data, and the top 10 wells over the past 12 months (of the ~5,500 wells that have come on-stream in the last year).