Crescent Point Energy has entered into an agreement with Shell Canada Energy to acquire Shell’s Kaybob Duvernay assets in Alberta for $900 million. The total consideration consists of $700 million in cash and 50 million common shares of Crescent Point.

Highlights

• Strategic entry into a premier and established liquids rich play with greater than 10 years of high-return, low risk drilling inventory.
• Strengthens expected 2021 excess cash flow generation to approximately $375 to $600 million, at US$50/bbl to US$60/bbl WTI.
• Pro-forma 2021 guidance production of approximately 134,000 boe/d, primarily comprised of high-margin oil and liquids.
• Improves netback by over seven percent by lowering royalty rates and reducing per boe operating and G&A expenses.
• Lowers expected year-end 2021 leverage to approximately 2.3 to 1.6 times adjusted funds flow, at US$50/bbl to US$60/bbl WTI.
• Enhances ESG profile through Assets with a low standing well count with minimal reclamation and a low emissions intensity.

Key attributes of the acquired Assets include the following:

• Production of approximately 30,000 boe/d (57% condensate, 8% NGL and 35% shale gas);
• Core of the condensate rich fairway with attractive reservoir characteristics, including higher pressure and pay thickness;
• Approximately 500 net sections of contiguous land in the Kaybob area (approximately 325 net sections undeveloped);
• 98 percent Crown land with limited expiry concerns and a high working interest of approximately 100 percent;
• Approximately 200 net internally identified drilling locations, based on conservative well spacing of 600 meters, of which only 36 are booked as Proved plus Probable (“2P”) in the independent evaluators report prepared by McDaniel & Associates Consultants Ltd. (the “McDaniel Report”). These locations are primarily comprised of two-mile horizontal wells;
• High quality type wells with strong liquids rates and competitive full-cycle economics;
• Significant owned and third party infrastructure currently in place, leading to lower expected future capital requirements; and
• A royalty rate of approximately five percent and expected operating expenses of approximately $7.25 per boe.

Prior to the expected closing of the Acquisition in April 2021, Shell plans to bring a number of drilled and uncompleted wells on stream. As a result, production from the acquired Assets is expected to increase to approximately 35,000 boe/d during second quarter 2021. Crescent Point plans to manage these Assets to target a lower decline rate and longer-term production of approximately 30,000 boe/d. Following the initial period of flush production, the Company’s pro-forma decline rate is expected to remain unchanged at approximately 25 percent.

Crescent Point will also seek opportunities to enhance returns over time through potential operational efficiencies and effective knowledge transfer. Crescent Point will combine its significant expertise in multi-well pad development and field technology, including experience gained from other North American resource plays with similar geology, along with the technical expertise provided by the Shell staff that will be joining the Company. 

With approximately 30,000 boe/d of production and assuming US$50/bbl WTI, the estimated acquisition metrics are as follows:

• Less than 3.0 times net operating income based on an operating netback of approximately $30 per boe;
• $30,000 per flowing boe; and
• $12.87 per boe of 2P reserves of 107.4 MMboe as assigned by the independent evaluator, equating to a recycle ratio of over 2.0 times, including $483 million of undiscounted future development capital.

The acquired Assets are estimated to require approximately $180 million of annual capital to sustain approximately 30,000 boe/d of production, further enhancing the Company’s free cash flow generation. 

KeyFacts Energy: Crescent Point Energy Canada Onshore profile