Nov 10, 2016
Executives
Scott Saxberg – President and Chief Executive Officer Ken Lamont – Chief Financial Officer Neil Smith – Chief Operating Officer Trent Stangl – Senior Vice President, Investor Relations and Communications
Analysts
Thomas Matthews – AltaCorp Capital Jason Frew – Credit Suisse
Operator
Good morning, ladies and gentlemen. My name is Elena, and I will be your conference operator today.
At this time, I would like to welcome everyone to Crescent Point Energy's Third Quarter 2016 Conference Call. [Operator Instructions] This conference call is being recorded today and will also be webcast on Crescent Point's website, but may not be recorded or rebroadcast without the express consent of Crescent Point Energy.
All amounts discussed today are in Canadian dollars, unless otherwise stated. The complete financial statements and management's discussion and analysis for the period ending September 30, 2016, were announced this morning and are available on Crescent Point's website at www.crescentpointenergy.com and on the SEDAR and EDGAR Web site.
During the call, management may make projections 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 operations or financial results are included in Crescent Point's most recent annual information form, which may be accessed through Crescent Point's Web site, the SEDAR website, the EDGAR website 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 would now like to turn the call over to Mr. Scott Saxberg, President and CEO.
Please go ahead, Mr. Saxberg.
Scott Saxberg
Thank you, Operator. I'd like to welcome everybody to our third quarter conference call for 2016.
With me is Ken Lamont, Chief Financial Officer; Neil Smith, Chief Operating Officer; and Trent Stangl, Senior Vice President of Investor Relations and Communications. I'll start off with a quick overview of the quarter and outlook, and Neil will discuss our operational highlights, and Ken will speak to our financial highlights.
We had an excellent year operationally and remain on track to meet or exceed our 2016 average production guidance of the 167,000 BOEs per day. During the third quarter, we resumed activity in our drilling program and achieved average production of over 160,000 BOEs per day, which is ahead of our budget.
We also continue to lower costs which are now down an additional 12% from year-end 2015. Throughout 2016, we've been successful in each area of our new play development.
We've added approximately 700 new internally identified drilling locations in our Flat Lake and Viking Resource Plays alone, and we also added 120 internally identified horizontal locations in one of our six zones we are testing in Uinta. This is more than replaces our 2016 annual drilling program of approximately 600 wells, and represents over 150,000 barrels a day of productive capacity.
In Uinta, we generated strong production results from our horizontal program. We've drilled some of the biggest wells in our history, and are very excited about the future for horizontal development in the basin, and we are currently testing six unique zones and have a land base of approximately 170,000 net acres.
Flat Lake is another exciting growth area for our company with significant running room; approximately 22% of our budget is expected to be directed to this area during 2016, which is equivalent to our Viewfield Bakken play. Flat Lake is a high net back area, and reported third quarter net backs that were 24% higher than our corporate average.
Given the success of our new play development, we recently increased our company's fourth quarter 2016 capital program by CAD 150 million. We also increased the 2017 preliminary guidance from CAD 950 billion to CAD 1.4 billion.
Our increased fourth quarter 2016 capital expected to drive first quarter 2017 production of more than 170,000 BOEs a day or approximately 10,000 barrels a day over third quarter 2016. Our preliminary 2017 budget is expected to result -- in exit to exit growth of up to 8%.
During 2016, we've been testing new waterflood technology including our proprietary multi-stage segregated strings. This new system is more efficient with improved water injectivity and doubling of offset production rates after six months of injection.
This improved efficiency in our waterflood program potential us for fuel injectors, well conversions and ultimately less production been taken offline in the process. During the quarter, we also completed a CAD 650 million equity financing.
This financing both improves our balance sheet provides us with additional flexibility to further advance our resource place. Before I hand things over to Neil, I'd like to thank all of our employees for their hard work in helping deliver another successful quarter as we celebrate our 15th year anniversary.
I will now turn it over to Neil to discuss our operational highlights. Neil?
Neil Smith
Great. Thanks, Scott.
So we resumed our drilling activity during the third quarter and drilled a total of 225 wells with 100% success rate. We continued to execute operationally and are advancing our new play development, our waterflood programs and the implementation of new technology.
As Scott mentioned earlier, we've been testing a multi-stage segregated string technology in our waterflood programs to further improve the efficiencies. Our initial pilots today have shown 3 tons the amount of water injectivity and double the rate of production after six months of initial injection.
This is a game-changing improvement from our predecessor technology which previously stabilized to offset production after approximately one year of injection. We plan to further test and implement additional pilots across our company during 2016 and 2017.
We are also very happy to announce that subsequent to the third quarter, we received technical approval from the government of Saskatchewan for our third or four regional units in the Viewfield Bakken. This marks yet another significant milestone in the development of our waterflood strategy.
Within our new play development, we've had tremendous success. In Flat Lake we drilled 14 net step-out wells by the end of the third quarter and have identified 220 new drilling locations within the Torquay/Three Forks Midale and conventional Ratcliffe zones.
Our new Ratcliffe oil zone which is a 100 million barrels of oil original oil in place has minimal recovery to date and has expected to recover approximately 40% of the original oil in place over its life. In 2016, we also increased our strategic land position in Flat Lake.
In addition to land sales we added approximately 300 net internally identified drilling locations to our previously announced consolidation acquisition. So far we've drilled several Ratcliffe wells on these lands with production rates ahead of our expectations.
In the Uinta basins we continue to be the most active operator and have tested the most number of zones horizontally. We successfully drilled a total of 11 one-mile horizontal wells across six unique zones and have increased our geological knowledge in the basin to our three-dimensional seismic program and core data.
Economics have also improved through lower operating costs and narrower oil differentials due to access refining capacity. As Scott discussed earlier, we are very excited about the new play development of our Uinta horizontal well results including our Castle Peak wells.
90 day initial production rates on recent wells are more than 600 barrels a day and are paying out an approximately one year or less. We are also testing new completion techniques and optimizing our drilling operations as we advance our horizontal program across each unique zone.
Our Castle Peak completions are currently utilizing 31 stages per mile and approximately 1,715 pounds of Propane per foot of lateral. We look forward to a successful fourth quarter remain on track to achieve our annual targets.
Before handing things over to Ken, I also want to recognize and thank all of our employees and especially our field staff as we start heading into the cold winter months for their hard work in delivering another strong quarter. Ken?
Ken Lamont
Thanks, Neil. During the third Crescent Point generated fund flow from operations of CAD 368.1 million or CAD 0.72 per share which was ahead of budget.
This was supported by strong netbacks of CAD 29.27 per BOE relative to average selling prices of CAD 43.71. The company once again benefited from its conservative hedging program and its high quality, high netback asset base.
Beyond this success we've achieved in 2016 in our new play development and execution across our asset base, we've also continued to improve our capital cost and efficiencies. By the end of the third quarter, we successfully reduced capital costs by 12% over the fourth quarter of 2015 with some areas of high as 23%.
This is in addition to the 30% capital cost savings that were realized in 2015. As Scott mentioned earlier, we completed bought deal financing in September for gross proceeds of 650 million.
At quarter end inclusive of the bought deal financing, our net debt totaled 3.6 billion or approximately 2.2 times trailing fund flow. We retained significant financial flexibility and liquidity with no material near-term debt maturities and approximately CAD 1.9 billion of unutilized credit capacity.
During the third quarter we were also active on the hedging front. We added approximately 2.75 million barrels to our oil hedging programs since the second quarter and now have 44% of our remaining 2016 oil production hedged at approximately CCAD 75 per barrel.
During 2017, we have 25% of our oil production hedged at approximately CCAD 70 per barrel including 32% during the first half of 2017 at CAD 69 per barrel. We remain committed to maintaining our strong financial position and we will continue to protect our balance sheet as we grow our company's total production.
I will now hand things back over to Scott.
Scott Saxberg
Thanks, Ken. We're very pleased with the results.
During 2016 we remain on track to meet or exceed our annual guidance of 167,000 BOEs per day. Our capital allocation in our new play development during 2016 has resulted in a significant increase in our drilling inventory and the productive growth potential within our asset base.
Over the years, we have developed and captured a resource base with 23 billion barrels of oil in place and significant potential for scalability. Our largest core area is in the Williston Basin where we currently produce approximately 100,000 BOEs day.
We are the largest landowner in the Williston Basin with 2.3 million net acres, the largest Canadian producer and are not part in the largest producer among our North American peers in the Williston Basin. We look forward to the remainder of the year and are excited about our growth plans as we enter into 2017 and remain flexible in our capital program with potential for additional growth as we announced our new play development.
At this point, we're ready to accept questions from members of the investment community.
Operator
[Operator Instructions] Your first question comes from the line of Thomas Matthews with AltaCorp Capital. Please go ahead.
Thomas Matthews
Hi, guys. Just wondering if you could discuss, maybe Neil, discuss the difference between drilling the first Castle Peak wells and the second Castle Peak well, and if that was just drilling it into a different part of the formation or if there was something you tried technologically to improve, just discuss the difference there?
Neil Smith
Yes. I mean, there is two things going on there.
One of course is that we've shot the large 3D seismic program drilling vertical wells for strat taking core. So, as you drilling you are trying to true up your remote indicators who can like seismic to your mapping.
So that's really one aspect. The other you know is improving our drilling techniques, the mud, the beds [ph], all of those different things, and we've certainly we're going to more stages, we're going to larger tonnage [indiscernible] up to a tonne a stage now on there, and I look back in the day when we first started the Shaunavon approval, which seems forever ago where the experts and the leaders in that completion -- in that area, and we spent the first three, four, five wells learning, taking longer than what we wanted probably going over a little bit.
So, early stages you are always learning. Having said that, the well results that we are getting are greatly exceeding our expectations right now, certainly the Castle Peak is very much exciting us.
We have indicated that caring now like over 120 locations that we have identified and that's just at the early stages of the play. I do anticipate with further refinement and delineation, that number will go up and that's only at four wells section right now.
So we are really excited, the Castle Peak appears to be all of that.
Scott Saxberg
Yes, I think the biggest change when we first went into the play with their first horizontal well on the completion side was more of a North Dakota Viewfields style frack, and in May we switched to more of a stack scoop frack completion technique. So larger tonnage and we have seen the dramatic increase in results and it's been consistent with every well it seems and we have only really delineated a small portion of our land base and so it's a pretty significant highly economic play one year payouts put it in our top fertile boulevard really.
We have the highest inventory in North America for rigs returned, and so to put it into context of Viewfield, Shaunavon, Viking, southeast conventional are at the top, weights a returned place in North America above the Permian and that's mainly because of our royalty regime and its Saskatchewan and obviously IP rates of capital and all that. And so for a play like Uinta to compete at that level, early, early stages and it's like give us a lot of excitement and its scalable at large scale.
So, it appears right now they have all of the characteristics for a large growth base.
Thomas Matthews
And are you seeing similar kind of improvements the results from some of the other formations in that stack or is it still too early to tell?
Scott Saxberg
Yes. I mean we are just testing individually one well zone and we have had some pretty good early results in couple of other zones, but it's early, early relative to Castle Peak.
It's the one that we have delineated the most, and across, when you look on our mapping, it's across three townships of land. So the Castle Peak we have casted across a large broad area whereas in our other zones that it's more precise in one or two areas.
So it's early days on those zones.
Thomas Matthews
Okay, and then just finally, the CAD 5 million well cost that you have in your new presentation, is that factored in some more testing or that increase frack tonnage and stages or how is that expected to change or remain stagnant going forward?
Scott Saxberg
Yes, I mean obviously, it's early stages and it's in -- it's inclusive of all the cost of that larger completion technique and it's the average of our latest wells and we would expect as in over other place that those cost will improve with productivity improving as we get more data and continue to drill.
Thomas Matthews
Okay, great. That's it for me.
Thanks.
Scott Saxberg
Thanks.
Operator
[Operator instructions] Your next question comes from Jason Frew with Credit Suisse. Your line is now open, please proceed.
Jason Frew
Hi, thanks. This maybe for Neil as well, I just want to get better understanding of what's technically different about the new waterflood technology and just how far long that is in terms of pilot versus commerciality?
Thanks.
Neil Smith
Sure. I mean basically what we are doing, the technology, the entrepreneurism, the strong technical development and all which that we have done in all our completion techniques and renowned as world leader in advancing that.
We got those same people are now using that technology and ingenuity towards injecting water. And the concept is simply what we are trying to do is rather than just bull heading water down so that you just inject water and it goes where it goes along the well bore, we are trying to be a lot more precise on trying to place the water along the well bore with different techniques.
So, different strings having different injection points along there, what's exciting is in our early pilots, this is as I mentioned in the preamble, quite a game changer where we are seeing doubling and more of production in six months whereas normally we had been seeing up to a year for this waterflood response and the offset producers. We are also seeing that we are putting more water into the ground and without seeing that quick response from the producer.
So that means what we are doing is creating a better, more efficient flood front and improving the sweep efficiency to get the oil pushed to the producers. So, it is a game-changer, it is the result of our leading edge technology being applied to the waterflood and this is a game changer.
We are now putting in several more of these systems through this quarter and then through this year and next year we will start observing, seeing maybe this is the next significant generation of the way to put water into a tight waterflood resource play in. And again remember the Viewfield Bakken that we are operating is the world's largest resource play waterflood that we are operating.
So just to put it in a maybe more simple view of, this is equivalent to the step from going from surgi ffack to Packer's plus system back in 2006 and 2007 and then going for the Packer system to the plug in perf system. It's that same equivalent leap of technology from waterflooding and so it's the waterflooding version of that and then it's done at a very cheap cost, it's like less than CAD 100,000 or CAD 100,000 per well.
So this is a very cheap system that's proprietary developed by Crescent Point to go into the waterflood and it's our view of the bang for the buck. It's that equivalent shift in technology and it's that dramatic of a change in technology relative to the past when you look at completion technique and development of completion technique.
Jason Frew
Yes, okay thanks. That's good color.
Neil Smith
Great, thanks.
Operator
Thank you. There are no further questions registered at this time.
I'd now like to turn the meeting back to Mr. Saxberg.
Scott Saxberg
Great. Thank you very much for participating in Crescent Point's 2016 third quarter conference call.
And if you have any more questions you can give us a shout in our investor relations or directly. Thank you very much.
Operator
Thank you ladies and gentlemen for participating in Crescent Point Energy's 2016 third quarter conference call. If you have more questions, you can call Crescent Point's Investor Relations department at 1-855-767-6923.
Thank you and have a good day.