Crescent Point Energy Corp. announces the appointment of Craig Bryksa as President and Chief Executive Officer (“CEO”), the adoption of a new clearly defined transition plan with measurable deliverables, the Company’s preliminary 2019 guidance and the appointment of Robert (Bob) Heinemann as the new Chairman of the Board.

“Our Board looks forward to working alongside Craig and his team as the company executes its transition plan and strategy,” said Barbara Munroe, Chair of the Governance and Nominating Committee. “After conducting a formal review, which considered internal and external candidates, Craig stood as the best-suited individual based on his demonstrated leadership and prior experience with Crescent Point’s asset base.”

TRANSITION PLAN KEY HIGHLIGHTS

• Focusing the Company’s asset base by pursuing significant upstream asset divestitures.
• Targeting a net debt reduction of over $1.0 billion by year end 2019, at current strip commodity prices, through a disciplined return-focused budget and asset dispositions.
• Identified certain midstream assets for potential monetization.
• Reduced workforce, resulting in an annual total expense savings of over $50 million.

“Our transition plan is designed to ensure we become a more focused and efficient company with a stronger balance sheet,” said Mr. Bryksa. “After taking a refreshed approach in reviewing our business, we will look to refocus our asset base into fewer operating areas, follow a more disciplined capital allocation process and reduce our costs. We believe this new approach will enhance our company’s sustainability and returns for shareholders.”

CONCLUSIONS FROM REVIEW PROCESS

Crescent Point undertook a comprehensive review of its asset base, business strategy and organizational structure. The Company’s objective in conducting the review was to identify measures to prioritize Crescent Point’s strategy based on key value drivers, which include balance sheet improvement, disciplined capital allocation and cost reductions.  

This review process confirmed the following strengths within the Company:

• A suite of assets with high returns, scalability and the ability to increase free cash flow generation.
• Multiple high-quality assets of smaller scale that could be divested to enhance shareholder returns.
• A strong technical and operations team with a proven track record and waterflood expertise.

Crescent Point also identified several opportunities for improvement, including the following, which will be focal points over the next 12 to 24 months:

• Focusing the Company’s asset base, resulting in a stronger balance sheet and debt-adjusted per share metrics.
• Enhancing Crescent Point’s business model sustainability through increased free cash flow generation.
• Improving the Company’s cost structure and capital allocation process by emphasizing risk-adjusted returns and efficiencies.

FOCUSED ASSET BASE AND BALANCE SHEET STRENGTH

Crescent Point expects to optimize its capital allocation process and overall efficiencies by focusing its asset base. This approach is also expected to provide the Company with opportunities to execute strategic dispositions to further strengthen its financial position. Crescent Point considered a number of value enhancing options as part of its streamlining process, ranging from asset divestitures to more complex scenarios. The Company currently believes a straightforward plan is the best approach to executing its transition.

To focus its asset base, the Company considered a number of key criteria, including returns, scalability, free cash flow potential and the ability to improve commodity market access. Based on these factors, Crescent Point has identified the Viewfield, Shaunavon and Flat Lake resource plays as key focus areas. The Company also plans to continue advancing its emerging and earlier stage resource plays in the Uinta Basin and East Shale Duvernay in a paced and disciplined manner, which could provide significant opportunity over the long-term and garner increased capital over time. These areas, including its emerging and earlier stage resource plays, accounted for approximately 70 percent of Crescent Point’s second quarter 2018 production. The Company’s remaining assets account for approximately 50,000 boe/d of its current production.

Crescent Point is also reviewing the sale of certain infrastructure assets. The Company believes such a transaction could unlock value, provide a near-term source of proceeds for net debt reduction and create a strategic partnership. Such a purchaser could also potentially fund key future infrastructure projects, further increasing Crescent Point’s financial flexibility, market access and overall returns.

With asset sales being partially dependent on prevailing market conditions, the Company plans to be flexible in its divestitures program.

Crescent Point is targeting a net debt reduction of more than $1.0 billion by year end 2019 at current strip commodity prices. The Company’s debt reduction strategies include maximizing free cash flow through an efficient capital allocation process, cost reductions and disciplined asset sales. As at June 30, 2018, Crescent Point had a net debt to funds flow from operations of over 2.0 times and cash and unutilized credit capacity of approximately $1.5 billion, with no material near-term debt maturities.

The Company is targeting a net debt to funds flow from operations below 1.3 times in a commodity price environment of US$65/bbl WTI. Although this leverage target will vary based on commodity prices, Crescent Point’s long-term goal is to maintain a strong financial position, protect against price volatility and generate strong debt-adjusted per share metrics for shareholders.

ENHANCED FREE CASH FLOW GENERATION AND CAPITAL ALLOCATION PROCESS

• Consistent with its focus on free cash flow generation, versus simple volume growth, the Company expects to internally fund its development programs and further strengthen its balance sheet.
• Crescent Point expects to increase free cash flow generation through a combination of initiatives, including an improved cost structure, a more disciplined capital allocation process and advancing decline rate mitigation techniques, such as waterflood. The Company will manage its capital allocation process in the context of each investment, including its waterflood programs, competing for capital based on risk-adjusted returns and long-term development goals. 

Once Crescent Point achieves its target debt levels, it will be in a better position to allocate free cash flow to other opportunities that drive value, such as additional debt-adjusted return-based growth, a return of capital to shareholders via options such as dividends and potential share repurchases or a combination thereof.

ORGANIZATIONAL RESTRUCTURING AND IMPROVED COST STRUCTURE

As part of the Company’s cost reduction initiatives, Crescent Point is finalizing an organizational restructuring that includes an immediate workforce reduction of approximately 17 percent of employees. The Company expects this realignment to provide annual savings of over $50 million through reductions in both operating and general and administrative expenses. These savings partly reflect the recent restructuring of the executive team, which is also expected to result in approximately 20 percent lower annual compensation for current named executive officers in 2018 compared to 2017.

“I want to thank all of our staff for their hard work and contributions over the years,” said Mr. Bryksa. “This restructuring is difficult, however we needed to adjust the organization to match our current business needs. We are all focused on executing our transition plan and are excited about Crescent Point’s future.”

The Company’s transition plan also includes an ongoing review of its operating and capital costs, including the implementation of field automation to further increase efficiencies.

2018 AND PRELIMINARY 2019 GUIDANCE 

Crescent Point’s 2018 guidance remains unchanged, with an annual average production of 177,000 boe/d and $1.775 billion of capital expenditures. This guidance implies second half 2018 capital spending of approximately $750 million and production averaging approximately 174,000 boe/d, reflecting previously announced dispositions that closed toward the end of second quarter 2018.
The Company expects its 2019 capital expenditures to be approximately $1.55 billion to $1.60 billion, at current strip commodity prices, with annual average production of approximately 176,000 to 180,000 boe/d. This initial production range reflects various capital allocation scenarios and does not account for potential dispositions during the second half of 2018. Crescent Point intends to finalize its 2019 guidance upon the completion of its 2018 capital program. The Company’s capital expenditures budget excludes capital expenditures on land, which are less predictable and partly dependent on land sale outcomes. Land expenditures in 2019 are expected to be modest at approximately one to two percent of incremental capital. Crescent Point’s cash flow sensitivity in 2019, inclusive of current hedging, is approximately $45 million for every US$1/bbl change in WTI.

The Company’s near-term spending plan reflects its disciplined capital allocation process aimed at delivering risk-adjusted returns, consistent activity levels and projects that create long-term value. Under strip commodity pricing, Crescent Point expects its funds flow from operations to exceed capital expenditures and dividends in 2019, with free cash flow directed toward debt reduction. With a reduced near-term spending outlook, compared to previous projections, the Company is placing greater emphasis on returns versus growth during its 12 to 24 month transition. Following that period, Crescent Point expects its organic growth rate to increase in priority, including strong debt-adjusted metrics, as a product of a more focused and efficient production base. 

TRANSITION PLAN DELIVERABLES

The Company has established the following transition plan deliverables, which are expected to be achieved over the next 12 to 24 months:

Reducing the number of areas in which the Company operates, thereby further enhancing efficiencies.
Reducing its net debt to funds flow from operations to below 1.3 times, based on US$65/bbl WTI.
Increasing Crescent Point’s funds flow from operations netback through improvements to its cost and capital structure by greater than six percent at US$65/bbl WTI, from approximately $32.25/boe prior to this transition.
Increasing free cash flow generation through improved capital efficiencies, cost reductions, the application of decline rate mitigation techniques and following a disciplined capital allocation process.

“We have completed our strategy review and established a plan to create value for shareholders,” said Mr. Bryksa. “Although this transition will take time, we expect to deliver ongoing improvement to the company’s financial position, profitability and sustainability. I am excited about the near-term opportunities we have identified and building on these successes into the future.”

EXECUTIVE AND BOARD SUCCESSION PROCESS 

As part of Crescent Point’s ongoing Board renewal process, Peter Bannister has stepped down as Chairman of the Board, with Mr. Heinemann assuming the role. Mr. Heinemann has served the Board since 2014 and possesses more than 30 years of executive oil and gas experience and leadership, including acting as a director on various company boards as well as his prior position as President and CEO of Berry Petroleum Co. from 2004 to 2013.

“Crescent Point and its Board thank Mr. Bannister for his strong commitment and passion,” said Mr. Heinemann. “His leadership helped shape the company and establish it as one of Canada’s largest light oil producers. This standing is a significant accomplishment by all those who have been part of Crescent Point’s development over the years.”

The appointment of the Company’s Chairman of the Board and CEO follow Crescent Point’s previously disclosed governance review that commenced in late 2017 and includes Board and executive succession planning as integral components. Mr. Bannister and, as previously announced, Gerald Romanzin, will each be retiring from the Board at the Company’s 2019 annual general meeting (“AGM”). Following the Company’s 2019 AGM, Crescent Point’s Board will have undergone a complete renewal since inception.

“It has been a pleasure to serve on Crescent Point’s Board since 2003,” said Mr. Bannister. “I give my full endorsement to Craig, his new executive team and Bob as Chairman. I am confident in their abilities and that their refreshed approach and plan will drive increased shareholder value going forward.”