Veren - Q1 2024

Transcript

Operator (participant)

Good morning, ladies and gentlemen. My name is Ernest and I'll be your operator for Crescent Point Energy's first quarter 2024 conference call. This conference call is being recorded today and will be webcast along with a 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 here 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 discussion analysis for the period ending March 31, 2024, were announced this morning and are available on the Crescent Point SEDAR+ and EDGAR websites. I'll also place a mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session for members of the investment community.

If you would like to ask a question over the phone line during this time, simply press * the number 1 on your telephone keypad. If you would like to withdraw your question, press * 2. During the call, management may make predictions 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 operation 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 during the day. I will now turn the call over to Craig Bryksa, President and Chief Executive Officer at Crescent Point. Please go ahead, Mr. Bryksa.

Craig Bryksa (President and CEO)

Thank you, operator. Welcome, everyone, to our Q1 2024 conference call. With me today are Ken Lamont, our Chief Financial Officer, and Ryan Gritzfeldt, our Chief Operating Officer. We're off to a great start in 2024. As recently stated, our strategic priorities are focused on operational execution, optimizing our balance sheet, and increasing our return to capital. Our first quarter results showcased how our operational execution and capital discipline led to solid results across our business. In the first quarter, we produced over 198,000 BOE per day. We generated CAD 130 million of excess cash flow, returning 60% of that to our shareholders through our base dividend and share repurchases. On the balance sheet front, we reduced our net debt by over CAD 150 million. Earlier this week, we entered into an agreement to dispose of non-core assets in Saskatchewan for CAD 600 million.

We plan to direct the net proceeds from this disposition towards debt repayment, further strengthening our financial position. As a result, we forecast our net debt at the end of 2024 to be $2.8 billion, or 1.1 times debt to cash flow. This would mark significant net debt reduction of $1 billion since year-end 2023. All these highlights serve as examples of how we are executing on our strategic plan and maintaining our commitment to enhance shareholder value. I'd like to focus today on our operational excellence across our entire portfolio, because that is what ultimately drives the effectiveness of our strategic priorities. In the Alberta Montney, we continue to demonstrate the quality of our asset base and our technical strength.

Our recent well results show that we are drilling some of the top wells, oil and liquids producing wells, not just in the area but across the entire Western Canadian Sedimentary Basin. We have also seamlessly integrated our recently acquired Alberta Montney assets and brought on stream 18 wells year to date with strong results. In Karr West, we brought on stream 3 multiwell pads since closing our acquisition in late 2023. These wells were drilled by the prior operator using their frac design, including tighter well spacing. The peak 30-day well rates from these first two pads have ranged from 400-1,400 BOE per day with 85% liquids. The third pad recently came on stream with strong initial results.

We will be bringing on stream our first fully operated pad in this area early second half of the year, which will utilize our drilling and completions design, including wider well spacing. At our recent multiwell pad in Gold Creek West, we tested different completions designs. We used a plug-and-perf technique on two of the four wells instead of sliding sleeves and have seen promising results to date. This pad had an average peak 30-day rate of 1,800 BOE per day per well with 85% liquids weighting. As good as these results are, we believe that we can do more to unlock future value by further optimizing our drilling and completions designs. Consistent with previous quarters, our Kaybob Duvernay results also feature strong IP30 rates with high liquids weighting, most of which is condensate. This leads to generating prolific returns in the area.

In the first quarter, I'm proud to say that our operating team achieved a remarkable milestone by successfully drilling the longest onshore well in Canadian history. Our record well had a total measured depth of over 9,000 meters, which included a lateral length of over 5,400 meters. It was drilled as part of a multiwell pad in the volatile oil window to access portions of the reservoir that otherwise would not have been recovered. We will bring this pad on stream in the second half of the year, and we are excited to see the results. Our most recent pad in this area, which came on stream in the first quarter, had an average peak 30-day rate of over 1,500 BOE per day per well, comprised of 75% liquids. I'd like to congratulate our Kaybob Duvernay team for their tremendous accomplishment in drilling this record-setting well.

This is yet another example of our technical bench strength and overall operating expertise. In Southeast Saskatchewan, we continue to advance our open-hole multilateral well development program and are seeing encouraging results from these wells. We plan to drill 10 two-mile, eight-legged wells during 2024. With the recently announced Government of Saskatchewan royalty incentive, the net present value and payout of our program improves by 10%. With our recently announced non-core asset disposition in Saskatchewan, we revised our 2024 annual production guidance to 191,000-199,000 BOE per day. Our capital expenditures guidance of CAD 1.4 billion-CAD 1.5 billion remains unchanged due to the minimal spending we had allocated to the disposed assets for the remainder of the year. On a pro forma basis, we expect to generate CAD 875 million of excess cash flow in 2024 at $80 per barrel WTI.

The majority of this excess cash flow is weighted to the second half of the year based on the cadence of our capital program. We will continue to allocate 60% of our excess cash flow to shareholders and the remaining 40% to the balance sheet. As I step back and look at where our company is headed, I've never been more excited. We will continue to focus on our strategic priorities of operational execution, optimizing our balance sheet, and increasing our return to capital to our shareholders. Our priorities are supported by an asset portfolio with 20 years of premium drilling inventory to provide disciplined per-share growth and significant excess cash flow. Our corporate transformation and improvements that we've made to get to this point are truly exceptional. Our first quarter results clearly show how positive the start of the year has been for us.

Before wrapping up, I'd like to invite everyone listening in on this call to our AGM later this morning, which will be held virtually. Please visit our website for further details. We'll now open the call to questions from the investment community, followed by questions from the webcast. Operator, please open the line to questions.

Operator (participant)

Thank you, sir. Ladies and gentlemen, we now begin the question-and-answer session. Should you have a question, please press * followed by 1 on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, please press * followed by 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Dennis Fong with CIBC World Markets. Dennis, please go ahead.

Dennis Fong (Equity Research Analyst)

Hi, good morning, and congrats on the strong results this morning, and thanks for taking my questions. My first one is maybe focused around the strong type curve results that you guys have showcased. I was just curious as to how would you think about or what level of improved confidence would you need to start applying these stronger results to your plan, and how would that potentially affect either the cadence of production growth or CapEx or free cash flow generated over both the next 12 months and the five-year program?

Craig Bryksa (President and CEO)

Hey, Dennis, thanks for the question. It's Craig here. I'll take some of this, and then I'll pass it to Ryan as he's with me here too, and he can talk to you a lot about how the operations have been going. But, Dennis, off to a great start to the year. Happy to be with where we are, just over that 198,000 BOE per day. Got a good cadence of operations running, as you're well aware. We have the two rigs running in the Duvernay. We have the three rigs running in the Montney. And then we bob between, call it, two to three rigs in Saskatchewan, depending on the timing of the program. But operationally, things have been going very well. Well results have been coming in very well.

We're excited to see when you think to the back half of the year with our spacing, in particular in the Montney, not only our spacing but our well designs as those pads start to come online. We're certainly encouraged for that. Your question around well results and maybe more pointing towards some outperformance relative to type curves, I think we spoke a little bit about this at the Analyst Day. We'd like to see, call it, 2 to 3 to 4 pads in an area with consistent results that are in and around those numbers as we slowly creep that up within our type wells. So we take a little bit more of a measured or balanced approach. So ideally, you start to see this flow in over time. But really happy with where we are to date. Happy with the performance.

Encouraged with the performance of the operations team. Ryan, I don't know if you'd have any other comments on type wells in particular.

Ryan Gritzfeldt (COO)

Yeah, I think Craig answered it well. It is a good question. We've been getting that question a lot, specifically in Gold Creek West, where, like Craig mentioned, we're getting really strong results, 1,800 BOE a day, 85% liquids, IP30s, versus our type curve closer to 1,300 BOE a day. We do need more production history. How are those wells going to decline before we up our type well across the area in our 5- and 10-year plans? We have 300 locations in that area, and we're going to actually test probably tighter spacing to seven wells a section, which would add another 100 locations. But I think it's not prudent to just apply that 1,800 BOE a day result across the whole area.

So I think that kind of shows how we've adequately risked our production in our 2024 budget and five-year plan. And as we continue to get more results, more pads, more production history to fully understand the declines, that's when we'll look at bumping our assumptions in the current year and go forward.

Dennis Fong (Equity Research Analyst)

Great. Great. Appreciate that color and context. My second question is shifting maybe more towards the balance sheet. You've obviously completed some non-core asset sales in the first quarter and recently announced further non-core asset sales. When I think about, we'll call it, CAD 1 billion of potential debt or deleveraging that you see over the next 12 months, both organically and inorganically, how comfortable are you with that pace of deleveraging? And obviously, there's a further debt target behind that. But I just wanted to understand about the pace of that versus where any commodities are, your current capital plans, and what that might afford you for flexibility in terms of capital allocation. Thanks.

Craig Bryksa (President and CEO)

Yeah, thanks, Dennis. So Ken is with us here too as well, so he can give you some color on this in a second. But for us, when you look at where we were at the end of last year after we did that big strategic Montney acquisition with Hammerhead, we had our balance sheet at about, call it, just under CAD 3.7 billion-ish of absolute debt. So for us to chew up basically CAD 1 billion in a 12-month period, I would say, is a good pace of debt reduction. We're happy with that and happy with projections on that, both through the non-core dispositions in Southern Alberta and Northern Alberta, which we closed in the first quarter, and now the most recent one here in Saskatchewan that we just had announced.

So when you combine the proceeds from that plus what we see for excess cash flow generation and the share that the company keeps, that's in and around $1 billion. So it's a good significant move, our strengthening of our balance sheet. Look, for us, as we've talked, Dennis, and you and I have talked in the past, we'd like to be here a near-term debt target. I'm saying near-term, of around $2.2 billion of absolute debt. That's about 1x debt to cash flow in that, call it, $60-$70 price environment. Sorry, $60-$65 WTI price environment. That would be about 1x. So we want to move quickly towards that. So look, for us to try and accelerate into that as we go.

But very happy with the progress we've made to date, and we'll continue towards that strengthening towards that, like you say, CAD 2.2 billion. And then as we get to that level, look, for us to start to talk about increasing our return to capital to shareholders. So right now, we return 60% of our excess cash flow to our shareholders. As we get closer to that number or in and around that number, look, for us to grow that profile as well. And then further beyond that, when you look at the business moving forward, Dennis, we'd like to be we'd like to be in the neighborhood of about CAD 1.7 billion of absolute debt is how we'd like to run the business for the long term. And that would equate to 1x debt to cash flow at $50 WTI.

When you're in that type of level, you're pretty much bulletproof from a balance sheet standpoint. When we talk balance sheet optimization, that's what we're gearing towards, is that type of level. I can tell you, I'm pretty pumped myself on a billion-dollar net reduction here over, call it, a 12-month period. Ideally, Dennis, next time we're talking, we can say we're doing even more than that, but certainly a good start. Ken, I don't know if.

Ken Lamont (CFO)

Yeah, the only thing I'll add to that, Dennis, is we're obviously very highly hedged here the back half of this year. So about 45% fixed-price hedged on oil, 30% on gas. And that extends in oil into 2025 as well, in the first half, about 20%. So as far as our ability to harvest that retained excess cash, feel very comfortable just given the level of the hedge books as well too. So that'll provide a little more certainty in bringing that in and bringing that debt down.

Dennis Fong (Equity Research Analyst)

Great. I appreciate the context there. I'll turn it back. Thanks.

Craig Bryksa (President and CEO)

Thanks, Dennis.

Operator (participant)

Thank you. Your next question comes from Amir Arif with ATB Capital. Please go ahead.

Amir Arif (Managing Director and E&P Research)

Thanks. Good morning, guys. Just a few quick questions. Just on those Karr West wells, I know it was a previous completion approach, but just the variability between the 400-1,400, can you just give us a sense of what was causing that and if there were any lower Montney wells included in those pads?

Craig Bryksa (President and CEO)

Yeah, I think it's best for Ryan to grab that one.

Ryan Gritzfeldt (COO)

Yeah, good question. So the 5 of 11 pad, it did have 3 lower Montney wells. We spoke a little bit at our investor day about how the previous operator drilled through a fault on that pad. And so there are a handful of wells that have shortened lateral lengths because of that. And we also think that the lowers were drilled a little bit too low, close to the very bottom of the Montney zone. So we think that definitely some of the wells have been impacted by that. Some of the B and the C Montney wells are strong at that 1,400 BOE a day. What we're excited about here, going forward. So we're bringing a pad on right now. It's our 2 of 10 pad.

We'll have IP30 results in the next quarter. Still at the previous operator well spacing, but with our fluid system in our frac design. So look for those results. And then we're also right now drilling a pad down in that Karr South, Karr West area, the 5 of 23 pad, where we're testing the Lower Montney again, but we didn't drill those as low as on that 5 of 11 pad. So look for that pad, the 5 of 23 pad, where it's our well spacing, so a little bit wider well spacing, and our fluid system for our frac. So look for those results in the summer.

Amir Arif (Managing Director and E&P Research)

Okay. I don't believe you've booked too many Lower Montney wells. How big could the inventory at be from that zone? Or is it too early?

Ryan Gritzfeldt (COO)

Yeah, I think yeah, there's a very small amount of Lower Montney booked. But yeah, if you apply a fairly conservative well spacing, there's probably conservatively 150-200 Lower Montney locations in that area.

Amir Arif (Managing Director and E&P Research)

Okay. Sounds good.

Ryan Gritzfeldt (COO)

But just a handful booked.

Amir Arif (Managing Director and E&P Research)

Yeah. Yeah. And then just a question on the different completion approach of the sliding sleeve versus plug-and-perf. It doesn't seem to be making much of a difference on the performance, but obviously, lower well costs. Can you just give us a sense of how much you could reduce your well costs and when you'd be comfortable enough potentially shifting more to plug-and-perf and what the magnitude of the well cost saving would be?

Craig Bryksa (President and CEO)

Yeah. So this is Craig. Extremely excited about how those wells have came in. You know that the plug-and-perf, the IP, wasn't quite as high as the sliding sleeve, which makes sense when you think of that single entry point. Extremely excited, though, with how the operations team went through on the plug-and-perf and the success we had. And really, your point there, the big win on that is twofold. One, ideally, the decline rate is a little bit shallower. And then two, the cost of those wells was about CAD 500,000-ish less than what we were seeing on the sliding sleeve. So it's a significant win operationally for the team and then as well on the cost structure moving forward. So we do have a few more of those wells that we're going to be doing this year.

And we've built in that, call it, cost savings into those wells as we see it in our 2024 program. Ryan, I don't know anything.

Ryan Gritzfeldt (COO)

Yeah. No, that's good. Yeah.

Amir Arif (Managing Director and E&P Research)

Oh, I appreciate that color, Ryan.

Craig Bryksa (President and CEO)

That helped?

Amir Arif (Managing Director and E&P Research)

Absolutely. No, appreciate the color. Just one final question. Just on the open-hole multi-lats over in Saskatchewan, I believe the economics for your open holes are significantly better than your frac wells. Is this an area where eventually, should we be thinking about switching over to open holes for the full development eventually over time, or does open hole only work over certain parts of that play?

Ryan Gritzfeldt (COO)

Yeah, good question. For the most part, the open-hole multilaterals work as we're pushing the edges of the play, specifically where we kind of lose the frac barrier to the overlying water-bearing Lodgepole Formation. So in our core, the conventionally frac wells, I think, will still give us the best results. But it's when we start pushing the boundaries specifically to the north and to the northeast, that's where we're getting these really good results. The last open-hole multilateral we brought on end of March, it's been two months now at in and around that 225-250 barrels a day. So continuing to get great results. It's increased our inventory in the play.

Like we said in the Investor Day, this is an inventory that we're going to rush out and add rigs, but it definitely will help us maintain our production levels in the play and extend our drilling inventory life.

Amir Arif (Managing Director and E&P Research)

Terrific. Thanks.

Operator (participant)

Thank you. Your next question comes from Aaron Bilkoski with TD Cowen. Please go ahead.

Aaron Bilkoski (Oil and Gas Equity Research)

Hi. Good morning, guys. My question's on the CapEx associated with the assets that you had sold. I guess, am I correct to assume that you were planning to spend roughly $50 million there?

Craig Bryksa (President and CEO)

Morning, Aaron. When you look into the five-year plan, so beyond 2024, we had about CAD 50 million allocated to those assets. So from 2025 to 2028, it was about CAD 50 million a year. When you look at 2024, with us going through the disposition process, we had a very minimal amount of capital allocated to that. And I want to say, had the assets still been with us this year, we would have spent a minimal amount somewhere in that neighborhood of 15-ish million, I want to say, I think, in and around there in the back half of the year. And mainly, most of that was allocated to Flat Lake. But no, your assumption is right. Moving forward, it would have been around 50 in the five-year plan per year. This year was only about 15-ish.

Aaron Bilkoski (Oil and Gas Equity Research)

Gotcha. So as I look ahead to 2025, you have, seems like, roughly $50 million in unallocated capital. Where do you see that going? It's not enough to obviously add another rig, but do you use that to squeeze out a few more Montney and Duvernay wells if your pace of drilling and completion may be running a little bit faster than you had budgeted?

Craig Bryksa (President and CEO)

Yeah. We'll see how that goes. Aaron, like you mentioned earlier on the call, the cadence of operations has been good. Our team is just off and running, in particular with the Montney. I'm excited, and I know Ryan is excited with how the performance has been. We just ended up clipping a pacesetter well for us here, call it, a month or two ago. That was basically 11 days. So it certainly tightened the time frame on how fast that we're drilling the wells, which is good because that drives your capital structure. When you look within the five-year plan, we'll spend some time here with now having the disposition done and through the summer on looking at capital allocation across the portfolio. Then we'll look to see how that plays within the five-year plan.

And I would expect more detail in and around the five-year plan, Aaron, later on this year. Right now, we've basically did it I don't want to say mechanical update, but basically, we've removed the assets that have been sold out of that plan and haven't really put any real work into the reallocation of that capital, if it even happens, Aaron. I mean, we're pretty happy with how it's going to date. So just because we had that in there doesn't mean we'll end up doing that or spending that. So we'll see.

Aaron Bilkoski (Oil and Gas Equity Research)

Thanks very much, Craig. I appreciate that.

Craig Bryksa (President and CEO)

Yep.

Operator (participant)

Thank you. Your next question comes from Jeremy McCrea with BMO Capital Markets. Please go ahead.

Jeremy McCrea (Managing Director and Equity Research)

Yeah. Hi, guys. You talked about well improvements, well cost savings. How much of this have you built into 2024 and 2025? I know you said there's some of it built in, but what could we potentially see for revisions if these wells continue to come above expectations or the well costs continue to come below expectations? I'll leave it at that for now.

Ryan Gritzfeldt (COO)

Yeah. Hey, Jeremy. It's Ryan here. Yeah. I mean, as you go, you build a little bit in, right? But again, what I've been seeing is these things take time. So we said our Montney drills, depending where you are, are CAD 9 million-CAD 10 million per well. And we have line of sight to sub-CAD 9 million over the next 12-24 months. So it takes time. We want to see it repeatably before we build more in. Like Craig mentioned, we brought in a different walking double rig into the play. It's taken a few pads to finally find its stride. It's drilled its quickest well at just under 11 days. But these things take time, right? So we've built a little bit in, but as we go, obviously, we'll build in more.

Kind of similar to the production results question, we need to see the results being repeated consistently, and we'll build it in over time.

Craig Bryksa (President and CEO)

The one thing I know too, Jeremy, so as you're well aware, one of the things or one of the things that really drives your cost structure is time on location. Ryan alluded to that. As we get the rigs running and we get smarter and we're doing things better and the team is really learning off each other, then ideally, you drive that time on location down. That's both on the drilling and the completion side as we follow along the three rigs in the Montney, in particular, with one frac spread. But the other thing that works in our favor is our internal procurement division. We've had some success recently here with working with a new service provider to pump our fracs. And that ended up saving us a material amount of money here on a per well basis too.

So Ryan's team is working that into the budget. But all that works in our favor as well too. So we'll see how that ends up playing out. But very happy with both the ops team on what they've been doing to date and then as well the procurement division on what they've been working with our service providers on, so.

Jeremy McCrea (Managing Director and Equity Research)

Okay. And maybe just a quick follow-up there too. Is there any new concepts that you haven't talked about here today? So we talked about trying the plug-and-perf versus the NCS. Is there any other new concepts that you're going to test over the rest of the year that you'll talk about come Q2, Q3 and say, "Hey, actually, that actually kind of worked here"?

Craig Bryksa (President and CEO)

Oh, go ahead.

Ryan Gritzfeldt (COO)

Yeah. I don't think so, Jeremy. I think what we're doing right now keeps us busy with new things. Craig mentioned we just drilled the longest onshore well in Canada in the Duvernay. And we've had questions, "Well, what did you do differently?" And honestly, not a lot different. It's just taking the learnings. We've been in the play now for, what, three years. It's taking the learnings and applying them. And that's why I say some of these things take time. But with all the things we do have going on right now, it's exciting to see where we can bring our costs to. Like Craig mentioned, with supply chain management, with our operations team continuing to push the limits. But in terms of new things like plug-and-perf in Gold Creek East that we're trying, there really isn't anything new that I can speak of.

Craig Bryksa (President and CEO)

Yeah. And Jeremy, I'd add to that. Our teams, as you get in here, they learn from each other. And the Duvernay team learns from the Montney team in a way they go. And we apply different things as we go. So it's a consistent evolution and always being innovative around that. So you're always looking at different muds and bit systems and how that works. So ideally, that drives your cost structure. The other thing is we're typically a little bit more conservative on our well spacing, as you're well aware. We'd rather be a little bit wider and creep our way in as opposed to being too tight and have to creep our way out and revise inventory to the negative.

So one thing you will see us do this year, Ryan said it earlier on the call, is with this success we've been having in Gold Creek West, that last pad is called 1,800 BOE per day on average per well at 85% oil or liquids. Look for us to tighten in that spacing on an offsetting pad to the pad's going to go directly to the west. We're going to tighten in that spacing. We're going to go from five wells to seven wells per DSU. Ideally, we get some very good, strong results like we've been seeing. And then that opens up inventory in that entire airway or area. So it's going to be a lot more of that. And then obviously, when you think of the Geos and how our landing zones and how they're steering the wells, they learn as we go.

Let's see optimal landing position. How do you want to stagger your zones between the different areas? So it's going to be more of that, just getting smarter and then look for us over the years to get even better. And like Ryan mentioned, that Duvernay well, we've been running in the Duvernay now for three years, a little over three years. So that well is 19 or basically 9,017 meters. That horizontal leg was 5,400 meters long. And Jeremy, we did that in one bit run. So not only is it the longest well in Canada, it's also drilled half a day faster than the peer who had that title in front of us. So the team, they did an incredible job on that. But we'll see how it plays out with us in the Montney.

Jeremy McCrea (Managing Director and Equity Research)

Great, guys. Appreciate it. Thank you.

Craig Bryksa (President and CEO)

Thanks, Jeremy.

Operator (participant)

Thank you. Your next question comes from Travis Wood with National Bank Financial. Please go ahead.

Travis Wood (Managing Director and Equity Research)

Yeah. Thanks and good morning. Questions probably for Ken. I just wanted to take it back to what Dennis was getting at around debt. I guess a couple of questions to get here. First, any more assets to be sold, smaller non-core stuff, the scraps that are left in the portfolio? And then how should we—is debt to cash flow the right way to think about where leverage sits? Or as you think about accelerating debt repayment, could we start to think this on a debt to cap base? Or what's the right way to think about that? And how low should the absolute debt number get to? So a lot of questions in there, but kind of just driving at one. And then any way to accelerate some of the repayment of the senior notes and the bonds that are coming due over the next couple of years?

Craig Bryksa (President and CEO)

Hey, Travis. Thanks for the question. I'll maybe grab the first one as far as A&D, and then I can pass it to Ken on the debt and the debt structure and how we're looking at optimizing the balance sheet. As far as A&D, Travis, you've watched Crescent Point over the last six years, but in the last maybe three years in particular on the movement within the portfolio. I did mention to you that we're going to take a good long pause as far as the acquisitions. We're happy with how things have come together here. So don't look for us this year to do anything on the acquisitions front.

I would also tell you too, as far as the upstream dispositions, when you look at now with us having moved off what we just moved off recently here, both in Alberta and Saskatchewan, we're excited with how the portfolio fits and stands today. So I wouldn't look for any near-term dispositions, further dispositions, upstream dispositions either. So again, happy with that as far as that movement on the portfolio. And then we'll look to execute here over the next call of 12-ish months. And then I'll maybe pass it to Ken as far as the debt structure and balance sheet optimization.

Ken Lamont (CFO)

Yeah. So on the debt side, Travis, I think the way we're approaching it is a bit of a leverage at a lower oil price is kind of where we set what I'll call our targets or our more optimal debt level. And so if you think about we've been signaling here on the back of the deal, and we open the year at CAD 3.7 billion of debt. And we talked about reducing that by about a billion and a half dollars to get to 2.2. That's kind of a debt to cash flow of around 1x at between $60 and $65 WTI.

And so that's really an initial level where we think if we can de-leverage down to that, that gives us kind of our first level of comfort and where we can kind of reflect on potential increasing in the return of capital proposition of the shareholders. In the longer run, we'd like to run our business at a 1x debt to cash flow at a $50 WTI. And so that's to Craig's earlier comment on this call about CAD 1.7 billion of absolute debt. And so that's really what we would like to manage the business at. Now, obviously, there'll be periods of times where we'll be well below that. There could be periods of times going forward where we'll be slightly above that. I think that's kind of where we're shooting to manage the business on average.

That's really how we're thinking about debt levels and where we'd like to get to. With respect to the bonds, absolutely. There are early repayment provisions within those bonds where interest rates sit today. There wouldn't really be any penalties at all to repay them early. However, outside of just having some covenants associated with those bonds, which were well inside of obviously, they're carrying an interest rate of 4%. So I'm not really motivated right now to repay those things early. And so I think we'll probably look to leave those outstanding for a bit more period of time here. And then obviously, to Craig's point, we're focusing on kind of getting to that CAD 2.2 billion of debt, retaining some excess cash, and just driving that balance sheet down this year a little bit further.

Travis Wood (Managing Director and Equity Research)

Okay. Perfect. Is that 1.7 the threshold on absolute debt where we could start to think about 100% of excess cash be returned? Is that the optimal level for that scenario to play out?

Craig Bryksa (President and CEO)

So Travis, like we've mentioned, as we get to $2.2 billion, look for us to grow the allocation that we're returning. So right now, we return 60% of our excess cash flow goes back to the shareholders in the form of base-level dividends. And then the top-up is all happening right now through share repurchases. And we certainly believe that that makes sense with how we trade on our intrinsic value. So look for us to continue that. As we get to $2.2 billion, look for us to grow that percentage upwards and call it somewhere in that 70%-75%-ish% range as we get there. And we'll see how that plays out as we work through that with both the management team and the board. As we get to $1.7 billion, I wouldn't expect that to grow any further, Travis.

I mean, for us, there's always going to be a component of that excess cash flow that we maintain in the business to continue to strengthen either a balance sheet or to, if you want to allocate a little bit more to some organic growth or that sort of thing. But we certainly believe in always maintaining a certain level of excess cash flow for us to stay in the business and quite happy to drive the balance sheet down well below that $1.7 billion of absolute debt. That is our target. So don't look for us at any point in time to go to that 100.

And I would also say too, Travis, when you look at us relative to our peers with our asset base and our netback, both operating netback and then cash flow netback, I think Crescent Point punches well above its weight as far as excess cash flow per share generation. So our 75% certainly be competitive with what some of those other peers would be doing at a little bit higher level.

Travis Wood (Managing Director and Equity Research)

Okay. I appreciate all the color there. I'll turn it back.

Craig Bryksa (President and CEO)

Thanks, Travis.

Operator (participant)

Thank you. There are no further questions on the phone line. Please proceed.

Craig Bryksa (President and CEO)

Thanks, operator. I'll pass it over to Sarfraz Somani, our Manager of Investor Relations, to moderate a couple of questions here from the webcast.

Sarfraz Somani (Manager of Investor Relations)

Yeah. Thanks, Craig. So there's just a couple of questions on tax. And I'm just going to group them here into one. The question would be, when do we expect to pay cash taxes? And does this timing get impacted by the recent non-core Saskatchewan disposition?

Ken Lamont (CFO)

Yeah. So the non-core Saskatchewan disposition didn't have a real material impact really on our production, excess cash generation, and/or tax profile. Right now, as we sit on strip, we will not be taxable until the year 2026. In 2026, I would expect to be on strip taxable at kind of a 9% of our cash flow would be the effective tax rate. And that kind of holds steady going forward at strip over the following year. So no cash taxes in 2024 or in 2025.

Sarfraz Somani (Manager of Investor Relations)

Okay. Great. There are no more questions right now on the line. Just want to thank everybody for joining our call today.

Craig Bryksa (President and CEO)

Thanks, everyone.

Operator (participant)

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating. Ask that you please disconnect your line.