(IDEA) Crescent Point Energy
Note to readers: Figures are in Canadian dollars expect where specified.
Crescent Point Energy (CPG) is a Canadian oil and gas E&P with operations in Alberta and Saskatchewan. Its drilling activities are focused in the Duvernay and Montney plays in Alberta, and the Viewfield Bakken, Shaunavon, and Flat Lake plays in southern Saskatchewan.
Source: CPG September 2023 Corporate Presentation.
Before 2020, CPG was a more diverse collection of assets overseen by a board of directors and management team that allocated capital inefficiently. The company’s low profitability caused its shares to trade at a low multiple relative to peers. Its far-flung operating footprint and sub-par management caused us to avoid its shares for years. However, under CEO Craig Bryksa, CPG has transformed into a more focused operator. Under Bryksa, the company has sold mature, high-cost acreage, much of which involved substantial abandonment liabilities. It reallocated capital to more profitable acreage in short-cycle plays, where results are repeatable and capital spent on drilling activities is paid back more quickly. The transformation is pictured below.
Source: CPG September 2023 Corporate Presentation.
CPG also allocated capital toward paying down debt, thereby increasing value and reducing risk for shareholders. We expect the newly emerging CPG to garner a higher multiple as the market better appreciates the high quality of the company’s acreage and the repeatability of its results.
CPG’s transformation has already been recognized in a higher share price. Year-to-date, it has outperformed Canadian E&Ps with a 12.9% return versus the XEG ETF’s 8.6% return. It has also outperformed most of its Canadian mid-cap E&P peers. However, the company still trades at a relative discount given its attractive drilling economics and healthy balance sheet. We believe there’s more multiple expansion to come as long as WTI is sustained above US$80 per barrel.