Veren - Q3 2023

Transcript

Operator (participant)

Good morning, ladies and gentlemen. My name is John, and I will be your operator for Crescent Point Energy's Third Quarter 2023 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 today are in Canadian dollars, with the exception of West Texas Intermediate pricing, which is quoted in U.S. dollars. The complete financial statements and management's discussion and analysis for the period ending September 30, 2023, were announced this morning and are available on the Crescent Point, SEDAR+, 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 over the phone line during this time, simply press Star, then the number one on your telephone keypad. If you would like to withdraw your questions, please press Star two. During the call, management may make projections or 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+, and 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.

Craig Bryksa (President and CEO)

Thank you, operator. I'd like to welcome everyone to our Third Quarter 2023 Conference Call. With me today are Ken Lamont, our Chief Financial Officer, and Ryan Gritzfeldt, 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. We're continuing with our new conference call format to add a level of further engagement and to turn the call into more of a discussion. Earlier today, we issued our quarterly press release, financial results, and an updated corporate presentation, each of which can be found on our website. During this call, I'll provide a brief strategy update, highlight our results, and discuss our overall outlook. We'll then move into a Q&A session. We will start by taking questions over the conference line, as we usually do.

Once those questions have concluded, I'll then turn the call over to Shant Madian, our Vice President of Capital Markets, who will moderate questions from participants joining us on our webcast. We encourage those on the webcast to submit questions using the chat function on the online portal. We look forward to the discussions that this format will provide. Let's get started. It has been a busy year at Crescent Point as we continue to execute on our portfolio optimization strategy. Our recent acquisition in the Alberta Montney has generated strong returns for the company, and we have been impressed with the operational results achieved to date, which I will speak to shortly. We've also been active on the disposition side to further streamline our portfolio, which included the sale of our North Dakota assets, which closed subsequent to the quarter.

This transaction allowed us to bring forward the future expected value for this area while also strengthening our balance sheet. These transactions are consistent with our strategy to focus our portfolio on high return, high netback, short and long cycle plays. This balanced portfolio allows us to deliver sustainable long-term returns for our shareholders through a combination of disciplined per share growth, a significant return of capital, and our balance sheet strength. I want to spend a few minutes touching on our Alberta Montney, as we are very excited about this addition to our portfolio and our results to date. From a strategic perspective, the Alberta Montney provides a deep drilling inventory, positioning within the volatile oil window, consistent geology with significant resource in place, and the opportunity to enhance returns through drilling and completions optimization.

Since entering the play, we continue to achieve consistent and repeatable results that are in line or ahead of our expectations, including some of the highest productivity wells in the entire Western Canadian Sedimentary Basin. At Gold Creek West, for example, our most recent pad brought on stream achieved peak 30-day rates of 1,200 BOE per day per well, with a high liquids weighting of nearly 70%. In addition to these results, we are also making progress on reducing costs and are evaluating opportunities to develop certain areas of the play at tighter spacing that would provide additional drilling inventory. We are currently running a one-rig program in the Montney, but we'll be evaluating, eventually looking to add a second rig to further accelerate the high return development of our deep inventory in the play.

Altogether, the addition of these Montney assets has significantly enhanced the quality of our overall portfolio and the company's long-term outlook. Shifting to the Kaybob Duvernay, we continue to generate very strong, consistent results, which has been a major part of our outproduction in 2023. If you recall, when we adjusted our 2023 production guidance to reflect our recent North Dakota disposition, our outperformance, largely driven from the Kaybob Duvernay, allowed us to partially offset the volumes that were sold. Our latest Kaybob pad, which came on stream during the third quarter, was ahead of our type well forecast, with peak thirty-day rates of approximately 1,500 BOE per day per well, comprised of over 80% liquids. What's notable from these results is that they are more than double those of an offsetting pad from the previous operator prior to our acquisition in 2021.

It is located on the eastern portion of our land, supporting future development in the area and investment in infrastructure in 2024. These results also highlight the benefits of our optimized well design and completion techniques. Our Kaybob Duvernay and Alberta Montney assets are both expected to generate a combination of sustainable production growth and excess cash flow generation for the company in the years ahead. Within our longer cycle operations, we are generating strong netbacks and excess cash flow as we progress our decline mitigation programs to enhance ultimate recoveries from our large oil in place pools. Our water flood and polymer flood operations continue to support strong oil production within our Saskatchewan holdings, resulting in a low decline rate of approximately 15%. We've also achieved great success in proving up our open hole multilateral well designs, with strong results to date in the Viewfield Bakken.

We recently improved the design of these wells to extend our laterals, to enhance production and reduce costs through drilling efficiencies. Our latest wells, using this approach, consist of approximately 2-mile laterals across 8 legs, which significantly increases reservoir contact and oil production. We recently achieved peak 30-day well results of over 300 barrels per day from our most recent 2 wells, with 100% oil weighting and very attractive economics. We're excited about this innovation as it has enhanced our overall returns and added new premium locations to our drilling inventory. We look forward to piloting this approach in other areas within our Saskatchewan asset. Looking ahead, we couldn't be more excited about our outlook.

Our preliminary 2024 budget forecast production guidance of 145,000-151,000 BOE per day, an excess cash flow generation of approximately $1 billion at $80 per barrel WTI pricing. Further out, our five-year plan forecasts production growing to 180,000 BOE per day by 2028, representing a 5% compounded annual growth rate, driven by strong production growth from our Montney and Kaybob assets. This growth is balanced by our low decline production in Saskatchewan, which allows us to maintain consistent decline rates throughout our plan to further enhance our excess cash flow generation. In total, we expect to generate over $4.3 billion of cumulative after-tax excess cash flow through 2028 at $75 per barrel WTI pricing, 60% of which is earmarked to be returned directly to our shareholders.

I'd like to thank everyone for their continued support and engagement, in particular, our staff, who continue to deliver on our purpose of bringing energy to our world the right way. We'll now open the call to questions from the analyst community and follow with a Q&A session for those on the webcast. Operator, please open the call.

Operator (participant)

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press star, followed by the number one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to cancel your request, please press star two. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. Your first question comes from the line of Amir Arif from ATB Capital. Your line is now open.

Amir Arif (Managing Director and Lead Analyst of E&P Research)

Thanks. Good morning, guys. Craig, just a few quick operational questions for you. Just in the Duvernay, could you give us some color on that new pad that you referenced in the northern part of your acreage at the volatile oil window? As I think you'd mentioned, there was a strong initial result. Some, I'm taking you don't have 30-day rates yet.

Craig Bryksa (President and CEO)

Yeah. So we've got we brought two, two pads on in the quarter, Amir. That one that we mentioned in the press release is that 14-06 or Fox Creek 8-06 pad that came on at around 1,500 BOE per day per well at just about 80% liquid. So a very good pad for us. And then we've got a pad in the northern part that is coming through flowback in the second quarter and has just been brought online here now. It looks very encouraging. Looks really good. It's just we don't have an IP30 on that one yet, so we get more well results and more time on production, look for us to then bring those volumes forward. But again, very encouraged by both those two pads here over the last quarter.

And then the one thing I would add, too, Amir, is one of the things that we really love about the Duvernay since we've been in there, is just how consistent and repeatable these results have been. And as you combine that with what Ryan's team and the operations front have been doing with our cost structure, and then the repeatability and the predictability of the ultimate well results, it's really starting to drive some very, very, very compelling returns. So exciting for us. And you know, note too, Amir, that Rig Two is now operating in the play for us as well too now. So going forward with two full drilling rigs.

Operator (participant)

Your next question-

Craig Bryksa (President and CEO)

Did I lose you?

Operator (participant)

Your next question comes from the line of Travis Wood from National Bank Financial. Your line is now open.

Travis Wood (Managing Director of Equity Research)

Thanks for taking my question. I wanted to touch on tax. A lot of your peers have shifted over to be taxable, cash taxable here through last year and this year. How does cash tax look for you guys going forward on kinda current pricing? I know, I think the presentation kinda highlights 5%-10% ± next year, but is there, is there a scenario that... or sorry, in 2025. But is there a scenario that would accelerate that to be cash taxable in 2024 by chance?

Craig Bryksa (President and CEO)

Hey, Travis, thanks for the question. I'll, I'll pass that over to Ken....

Ken Lamont (CFO)

Hey, Travis. Yeah, so I guess for the first part of your question, as we sit on the strip pricing right now, we will be paying zero taxes in 2024, and then that will be taxable at an effective rate of about 6% in 2025. And that's, that's relative to cash flow. So we don't see taxes at strip until 2025, and that'll be at 6%. Now, the second part of your question, do I see a scenario? I do have a model run that if we hit $100 oil here today and keep that flat, we would have some taxes coming into 2024, kind of in that 5% range. So that would be the sensitivity there.

We'd need to see $100 oil here flat.

Travis Wood (Managing Director of Equity Research)

Okay. Thanks, Ken. That's perfect color on that. So zero next year, high probability of zero, and then a modest 6% into 2025.

Ken Lamont (CFO)

Yeah.

Travis Wood (Managing Director of Equity Research)

One more question, just, just, I guess, operationally, and not related to the Duvernay or the Montney, but given a lot of open hole, multi-lat, acceleration in some older, well, vertically delineated plays, what... How, how many wells are you thinking that you would drill across Viewfield with that multi-lat strategy on those open holes that you announced with the quarter? With those two wells, does that make four total since you kinda first started talking about that, that open hole, pushing the boundaries at Viewfield?

Ryan Gritzfeldt (COO)

Hey, Travis, it's Ryan. I can take that one. Yeah, so, so really encouraged with those two most recent results. We've actually, we've actually done eight to date now. Those range from, you know, 1-milers, 1.5-milers, to 2-milers. These last couple, the good thing about them, too, is we've gotten our 2-mile costs down to under CAD 3 million. So, you know, continuing to increase the economics on those. And based on that, we, we have eight planned in Viewfield next year. And then, we, we also spud our first one in our Shaunavon play here. So probably won't have results before the end of the year on that Shaunavon well, but pretty excited to see what, what we'll get there.

All of our various reservoir simulations we ran there, we're kinda doing the same design, eight legs, you know, 50 meters spacing. So really looking forward to see what we can get in our Shaunavon play.

Travis Wood (Managing Director of Equity Research)

Okay. And is the right way to think about this part of the operational strategy, is it more so related to capturing, especially at Viewfield, improving the recovery, and or is it pushing the boundaries of the play, and capturing some, maybe some more growth opportunity, or is it more about the original oil in place?

Ryan Gritzfeldt (COO)

Yeah, I'd say both, Travis. So the first reason that we started trying this was in some parts of the play where it's a little bit thinner, but more porous, more permeable, it also had the wet Lodgepole above. So fracking, you ended up fracking into that wet Lodgepole and bringing in water. So, so now with the results we're seeing, to your point on, you know, is it just capturing more resource or is it economics? It's both. You're essentially getting, you know, in our view, almost double the EUR at a little bit less capital. So, you know, obviously, your economics look a lot better than, you know, doing it with our older style, you know, 8 wells per section and fracking.

So yeah, hopefully, that answers your question there. And like I said, we'll continue to drill. We have eight wells planned for next year. And yeah, I don't think this is something that, you know, we'll add rigs to get to. I think it's just helps kinda, you know, continue to keep our Saskatchewan production and that decline rate manageable, and you know, adds to our years of drilling inventory, you know, versus you know, adding rigs to get after it. So that's our current plan right now with the results we're seeing.

Travis Wood (Managing Director of Equity Research)

Okay, perfect. That makes sense. Thanks for the color.

Ryan Gritzfeldt (COO)

Yeah.

Craig Bryksa (President and CEO)

Thanks, Travis.

Operator (participant)

There are no further questions at this time at the phone line. I will now hand over to Mr. Craig Bryksa. Please continue.

Craig Bryksa (President and CEO)

Shant, do you want to moderate from the webcast?

Shant Madian (VP, Capital Markets)

Yeah. Thanks, Craig. So a couple of questions coming from the online portion. First, just based on success we've been having on the Montney well results, one of the shareholders was just asking if we can provide a little bit more color on our modified well design or frac technology that we're using in the Montney, I guess specifically around those elevator fracs.

I can give a little bit of color, and then Ryan can add some comments. Extremely happy with how the operations have been going here in the Montney over the last few months since we closed that deal. As far as operations go, we're currently on our fourth pad of drilling, and drilling has been going very well. One of the things when you look at our position within the Montney from a geological aspect is, we're in the normal pressured window within the play. We're in the volatile oil window, and we're on the normal pressured position within that play.

And then when you look across the benches from the Montney C to B and the A, into the A, there's no real change in the pressure gradient between those different benches. So really what that's telling you is there's no real natural fracture barriers between the benches within the play. So, what we've been doing is drilling the wells at the bottom of the C, and then hitting them with a very modern completion style, a modern frac, call it, 3 tons per meter. And then because that pressure gradient doesn't change on us and no natural frac barriers in there, it allows us to fracture through the C, the B, and into the A. So you get very good vertical height growth within the completion.

You don't get as much horizontal growth or half-length growth, but certainly get a lot of vertical growth, and that has led to some very, very encouraging results here in the near term. So look for us to continue to push this as we continue to develop it. But so far, so good. And then the other thing with this is, as we space the wells, in particular in Gold Creek West, because of the vertical height growth and maybe not as much of the half-length, it may allow us to tighten up that spacing a little bit tighter, which would ultimately add to well inventory, but we'll slowly dip our toes into that as we see results that dictate. So, Ryan, I don't know if you had-

Ryan Gritzfeldt (COO)

Yeah, I'll actually maybe add, you know, even on the, on the cost side, like Craig said, what's key is we're getting, you know, consistent, repeatable results, and on budget. And, an exciting thing for us, we've switched over our rig in the Montney to another rig. It's a walking double rig, you know, has lots of advantages, you know, larger pumps, higher hook loads, et cetera, et cetera. And, you know, we think with time, we're gonna be able to, you know, shave a day or two off of our drilling days and continue to decrease our costs. So, you know, excited to do that as well.

Shant Madian (VP, Capital Markets)

Great. Thanks, guys. Shifting to Kaybob a bit, and on that topic of well spacing, one question here specifically, how do we think about infill spacing here versus the prior operator? Typically, either by phase windows or, or how we've approached it since entering the play.

Craig Bryksa (President and CEO)

I can start, and Ryan can add some color. When you think of when we entered the play in 2021, we had our well inventory spaced fairly wide at 600 meters. When you look at maybe some of the other operators in the area or even the previous operator that we picked the asset up from, they did space wells fairly tight and creep in fairly tight, and we could see that from a lot of that, there is some interwell interference, and that's why we took that wider stance. Over the last basically 12-18 months, we've slowly been creeping in. You've seen us move, in particular in the volatile oil window, into that from 600 meters into 500 meters, and we'll see how things play out on that.

The results are very encouraging, and even that last pad I just mentioned, that FC 8-06 pad at 1,500 BOE per day is spaced at that level. So look for us to maybe slowly tighten this in a little bit more and see how they get. And then the other thing I would say, in each of the different phase envelopes, there's fairly different pressure regimes as well, so the spacing might be different between each of those, and, and that's reflected in how we've been drilling. But the idea is to slowly creep in, make sure we're comfortable, and then start to optimize. So things on that front have been really looking good. And, Ryan, I don't know if you want to.

Ryan Gritzfeldt (COO)

Yeah, I don't think I have much to add to that other than, like Craig said, it definitely depends where you are in the play. We have, you know, very rigorous, detailed reservoir models that we continue to update with the results that we're getting. And, you know, so far, we like what we're seeing with our current spacing plans.

Shant Madian (VP, Capital Markets)

Thanks, guys. A follow-up to that, specifically on Kaybob as well, any plans to develop on the western side, within the volatile oil sections?

Craig Bryksa (President and CEO)

Yeah. So when you look at, Ryan and I were staring at each other there on who was gonna talk through it. But yeah, when you-- so when you look at our 2024 budget, again, very active two-rig drilling program, and, and certainly we are looking to, get a pad on the western side there of the volatile oil window. We're gonna do that this year in 2024, and then we'll see how that ends up playing out. One thing that does give us comfort on our land position in there, is some of the offsetting competitor wells that have really proven up that land position for us. So you'll see us get a pad in there this year, and as we get those results online, then, we'll certainly put those into, into the market, but encouraged by everything that we're seeing.

Ryan Gritzfeldt (COO)

Yeah, sorry, I had to get my directions straight there. I mean, also, yeah, 2024, our 2024 Kaybob Duvernay drilling program is quite exciting. You know, like Craig said, we're stepping out to the west. We actually spudded a well to the southeast here recently, and, you know, we'll have production rates early next year. So yeah, really looking to see what these results can do to expand our drilling inventory and continue the momentum in the play.

Shant Madian (VP, Capital Markets)

I appreciate it, guys. At this time, there are no additional questions from those online. So we want to thank everyone for joining our call today, and if you have any questions that were not answered, please call our investor relations team at your convenience.

Craig Bryksa (President and CEO)

Thanks, everyone.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.