Oct 26, 2017
Executives
Scott Saxberg - President and CEO Neil Smith - COO Ken Lamont - CFO
Analysts
Travis Wood - National Bank Michael Stones - CLB Research Arthur Grayfer - CIBC
Operator
Good morning, ladies and gentlemen. My name is Sonia, and I will be your conference operator today.
At this time, I would like to welcome everyone to Crescent Point Energy's Third Quarter 2017 Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session for members of the investment community. [Operator Instructions].
Thank you. 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, 2017, were announced this morning and are available on Crescent Point's website at www.crescentpointenergy.com and on SEDAR and EDGAR websites.
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 the Crescent Point's most recent Annual Information Form, which may be accessed through Crescent Point's website, the SEDAR website, the EDGAR website or by contacting Crescent Point Energy. Management also calls to your attention to the forward-looking information in 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 2017 conference call.
With me is Neil Smith, our Chief Operating Officer, who will discuss our operation highlights; Ken Lamont, our Chief Financial Officer, who will speak to our financial results; and Brad Borggard, Vice President of Corporate Planning and Investor Relations. With another outstanding quarter and strong operational results, we achieved organic growth of 10% year-over-year or an increase of 15,000 BOEs per day.
As a result of our ongoing operational outperformance, we’ve increased our 2017 average production guidance for the second consecutive quarter to 175,500 BOEs per day from 174,500 BOEs per day. As you will recall our original production guidance at the beginning of the year was 172,00 BOEs per day.
We continue to expand our new play development in 2017 with successful horizontal development in the new zone within the Williston basin and a newly identified play targeting the Lodgepole zone within the Williston basin. With our Uinta basin program, we've proved a highly economic resource play with the Castle Peak and now completed two successful one-mile horizontal wells targeting the Wasatch and Uteland Butte zones, further expanding the size of the resource.
During second quarter we highlighted the strong initial productivity of our Wasatch well, we’ve now achieved accumulative production of over 200,000 barrels of BOEs after just 125 days and are on trend to achieve total reserves of approximately a million BOEs. During the third quarter we completed a successful one-mile Uteland Butte well which generated initial productivity of approximately 640,00 BOEs per day after initial 60 days period without the assistance of a pump.
In the Williston basin we continue expand our multi zone flat lake resource play through our step out drilling program. Step out drilling delivered strong results in our Torquay and Ratcliffe zones and also helped identify new large oil plays resources targeting the Lodgepole.
During 2017, we drilled several Lodgepole wells which have proven oil productivity. We're currently working towards improving the overall economics of this play which remains at the early stage of development.
We believe the Lodgepole zone provides significant resource potential within our investing core area. With the recent land sales and prior positions held by the company, Crescent point now owns a significant position of approximately 380,000 net acres or 600 net sections targeting the Lodgepole zone at an average working interest of 100%.
Our cost of entry to this Lodgepole was less than $40 per acre. In addition to increase in our production guidance, we have also increased our 2017 capital expenditure budget by 100 million to 1.55 billion.
We have primarily allocated this capital to the new play development and expansion in the Uinta and Williston Basins. The additional capital is being funded through our recent non-core dissipations of $190 million.
During third quarter 2017, we completed or entered into agreements to dispose of approximately 3000 BOEs of additional non-core assets for an accretive sales metric approximately 64,000 performed in BOE. This transaction brings total disposition of year-to-date to approximately 280 million.
We plan also to market additional non-core assets during 2017 generating potential proceeds of 100 to 200 million further highlighting our focus on balancing our cash flows. I now turn it to the Neil to discuss operational highlights, Neil?
Neil Smith
Hey, great. Thanks Scott.
During the third quarter, we achieved average production of 176,096 BOEs a day. This represents an increase of over 15,000 BOEs a day compared to third quarter 2016 and is driven by growth in each of the company’s core resource plays.
In third quarter, we spent approximately $424 million on drilling and development activities drilling over 200 net wells. Our total capital expenditures including land, seismic facilities were approximately $506 million.
As Scott mentioned, we are achieving increased success in our Uinta horizontal program where we have been targeting multiple zones. We also recently started drilling on our new operating lands on the western portion of the basin where we are seen encouraging results.
We are also currently in the process of updating our Uinta horizontal inventory and expect to provide an update as part of our annual year end process. As a reminder, these horizontal wells contribute significant productive capacity to our overall corporate production.
In the Castle Peak Zone, we have advanced our completions with strong 2-mile well results and are now targeting 2-mile development in our new zones in the Wasatch and Uteland Butte. During fourth quarter, we are increasing improved capital efficiencies by vertically stacking three 2-mile wells in one BSU targeting each of the Castle Peak Uteland Butte Wasatch zone.
In the Williston Basin in Southwest Saskatchewan resource plays, you can see implement our development strategy that includes a combination of low risk, high return infield development in step out drilling programs to expand economic boundaries and identify new plays as evidenced by our Lodgepole zone. We are also advancing new technologies including our water floor strategy which remains focused on moving forward our injection control device or ICD device system in the water floor systems.
At the end of third quarter, we had 46 ICD systems with encouraging results and remain on track to have a total of 50 systems installed by year end. Our new technology initiatives also include piloting remote field monitoring and automation in our core areas.
This entails adopting operating practices such as electronic well head measurement and pump off controllers which are expected to reduce downtime, optimize well bores and increase staff efficiency. During third quarter, we also began piloting solar powered in Saskatchewan as part of our ongoing climate change initiatives further highlighting the leading-edge technology culture within our organization.
Before I hand things over to Ken for our financial highlight, I wanted to commend all of our staff including those in our field, especially as we are going into the winter month, for there operational excellence and constant drive to improve efficiencies in our operations.
Ken Lamont
Thanks Neil. During the third quarter, we generated funds flow from operations of $389 million, this represents an increase of approximately 6% from the third quarter of 2016 driven by increased production.
Our adjusted net earnings from operations were 34 million an increase from the loss of 22 million in the third quarter of 2016. This quarter our adjusted net earnings exclude approximately 258 million of non-cash after imperilment resulting utility from changes in forecast commodity prices.
These impairments represent less than 2% of our total assets and can be reverse in future period of commodity prices recover. During the third quarter we improved our financial flexibility by layering additional oil hedges extending out to the second quarter of 2019, as a reminder our near-term hedges protect 48% of our fourth quarter 2017 oil production and 25% of our first half of 2018 oil production at an average price of approximately CAD70 per barrel.
We continue to add to our longer-term hedges as these opportunities present themselves. Our third quarter operating expense of $12.97 per BOE continues to include cost associated from seasonality and higher work over activity.
We're budgeting operating cost of $12.35 per BOE for 2017. As discussed on our last conference call, we remain focused on executing non-core asset dispositions to balance our cash out flows including acquisition.
During the third quarter we completed or entered into agreement to dispose of over 190 million of non-core assets to bring our total disposition year to date to approximately 280 million. Proceeds from our recent transactions are being directed towards funding our revised 2017 capital program which is increasing from 1.45 billion to 1.55 billion.
We're primarily directing this increase capital to new play development in both the Uinta and Williston basin including our new Lodgepole discovery. Our financial flexibility continues to remains strong with liquidity of approximately 1.5 billion and no near-term debt maturities.
At current strip prices and excluding the benefit from ongoing dispositions, we expect our debt to cash flow to be 2.3 times for 2017. I will now hand things back to Scott for some closing remarks.
Scott Saxberg
Thanks Ken. We are pleased with our third results which generated increased production and funds flow and reinforced our upwardly revised annual production guidance for the second consecutive quarter in 2017.
Our current success and consistent outperformance reflect the quality of our asset base, focused on large oil and play resources and culture of developing asset with knowledge first approach. To recap our highlights during the quarter include, continuing the expansion of our resource base through new play development including successful horizontal well in new zones in the Uinta basin and new Lodgepole discovery in the Williston basin, providing new horizontal locations which in Uinta are expected to double the productive capacity of the total corporate inventory, demonstrating their continued commitment of balancing cash flow for none core this business units and advancing new technologies to further increase efficiencies across our asset base.
We remain on track to meet or exceed our revised 2017 guidance and plan to release our formal 2018 guidance in late fourth quarter 2017 or early 2018, similar to prior years. Before we open up the line for questions, I would like to thank all of our employees for their hard work, delivering another successful quarter and also, I would like to thank our shareholders for their continued support.
At this point, we are ready to answer questions from the members of the investment community.
Operator
[Operator Instructions] Your first question comes from Travis Wood of National Bank. Your line is now open.
Travis Wood
Yeah, good morning guys. Probably difficult to answer this but just in the context of the shake of the forward curve largely from an oil perspective and spending through 2017.
Can you give us any line of sight to what next year could look like in terms of growth perspective and what that means for capital?
Scott Saxberg
Yeah, good question Travis. So, we are just in the midst of our 2018 budget program.
I would say at these price levels; our CapEx program would be in the similar range as this year probably the 1.6 billionish range or slightly higher just as we have grown production. And so, we would probably stick to that sort of level, with the high end be in probably 1.8 billion with the increase in commodity prices here over the next few months we may bump that up.
But we are effectively trying to stay within cash flow within our budget heading into the new year.
Operator
Thank you. Our next question comes from Michael Stones of CLB Research.
Your line is now open.
Michael Stones
Yeah, thanks. Can you shed a little more tangible color on what's happening in your water flood initiative in terms of maybe [indiscernible] some of the decline rates?
And then the second question is on the Uinta wells, what is your sort of average working interest if that kind of less than net gross level and your well count in the press release of around 50% or so when I look at that like 1000 barrel per day sort of IP for some of these wells you get basically half of that? Thanks.
Scott Saxberg
Yeah. thanks so on the water plug side, we have had some great success with our ICDs.
We see that immediate or six-month response time so in the past with our older water injection schematics on the wells they were like a year to 18 months to two-year water plug response and now with the ICDs were see in a short of response time 6 to 12 months. So that’s really worked well and we have continue added ICDs in our view field area and we are just working on planning for the capital spend for next year on our water plugs.
So that technology continues to move forward. On the working interest for the Uinta, we are effectively 100% on the wells that we have been drilling out there.
So, when we talked to 1000 barrel a day IPs those are our gross, but also basically were 100% in majority of the separate drilling.
Neil Smith
That is some non-operated that’s what brings the average, but what we operate close to 100%.
Scott Saxberg
Yeah. So, there is non-operating we have with new fields and some others in the area that we obviously get some good well information from but by and large everything that we are drilling is close to 100%.
Thank you very much.
Operator
Our next question comes from [indiscernible] of BMO Capital Market. Your line is open.
Unidentified Analyst
I just have a question regards to the Lodgepole, can you, I know it's still early days do you might sharing us what kind of the opportunities of this play is in terms of oil in place and potential and as well as some of the risks associated with this play to?
Scott Saxberg
So, the great success there this year in developing that play, so we been working on this play for couple of years now. And we saw -- as we draw through the Torquay and Ratcliffe zones that we're hitting this oil charge zone in the Lodgepole and we're getting oil over the shaker as we drill through the rock.
And so, a couple of years ago we started the process of collecting core data, mapping out that zone, testing the rock properties comparing to the other zones and the productivity. And we’re able to map out this resource effectively from the border or all the way to the north part and the extension of that land sales that we just acquired.
And so, this resource is well over 600 square miles in size and stretches from the south part of the border all the way to, to I said that extension of our land sales and we've effectively, our strategy this year was to drill four to five exportation wells all along the trend to prove up oil productivity along that trend and so we did that effectively from early this year, our first well was just at the end of Q1 and into Q2. We saw the productivity there and then followed it up with three more wells along that trend and got oil productivity across those three wells and which lead us -- and so we obliviously posted those lands back in April of this year with that strategy.
And the part of the rationale for posting such a large block, was there is a TLE claims which are native indigenous claims on land out there, under the Saskatchewan program they have. And so we wanted to prevent those claims from happening and so we posted all that land in a large block as well strategically to capture that land without any competition and so early in the middle of the year we had a small land sale that we purposely set up to target that land sale, then followed up with a second land sale and was able for us to capture that land at $40 an acre which when you look at the full cycle of this large resource, if it works out the way that we think it will be a very strong full cycle economics.
And its still early days, the completion technique that we use, we don’t think we're perfect and proper, so we're going to follow up into the new year with some casting on the types of completions to optimize it. But the exciting part and basically, we’re trying to target similar reserves productivity as the Torquay.
Unidentified Analyst
And just off the back of that, and especially with the strong results coming out of the Uinta basin there, how do you think about, capital allocation to the different areas in 2018.
Scott Saxberg
We’re working through that, as I said typically in the previous years, we have been very balanced in our approach to capital allocation. And so, we try to balance off because of the economics in each of our plays are very competitive to each other and with the Uinta the economics are very competitive obviously to our Saskatchewan royalty stuff so we are balancing that out and we are just putting that together.
Neil, I don’t know if you want to comment more on the allocation of that.
Neil Smith
Yeah, it’s going to be similar there, a lot of it’s going to be continuing as Scott said. We are having tremendous success everywhere we are drilling we are hitting oil and getting 1650 barrels a day wells.
We have a ton of running room and a ton of ideas. So, there is going to be some production adds, but it’s just going to be a lot of continuing to delineate the pools here.
And again, we are not on one zone anymore, we have 6 or 7 different zones that we are able to place. So, the longer-term upside here is significant.
Unidentified Analyst
But is the thinking now just more capital to Uinta probably in ‘18 versus what you guys had previously?
Scott Saxberg
Yeah. I think we are working through that.
Some of the things we are working on are the pad drilling, we are doing that two wells per zone and some of those things are tied to the timing of that capital and when we want to have that on stream. So those are some of the things that we are working towards.
Obviously with the refining, the refining capacity out there and railing of [indiscernible] so we are also working towards that as well and figuring out the capacity that we want to grow to. Right now, in our model for a five year plan its sort of 20% year-over-year growth.
So, at this stage, that’s kind of the numbers that are being allocated right now. Because of the IP rates and the economics of the place we don’t necessary have to expand our capital to get those kind of growth rates in that play so that’s kind of the math that we are working through.
Operator
Thank you. We have time for one more question.
Next question comes from the line of Arthur Grayfer of CIBC. Your line is now open.
Arthur Grayfer
Yeah, thank you. Just a quick question on the Lodgepole, is the opportunity or the smaller discrete pools or is that you mentioned it’s quite early extensive but are we looking at something that’s a large resource opportunity that’s stratigraphically like why or is it just smaller discrete opportunities?
Scott Saxberg
Yeah. It’s a full mappable from like I said a border all the way north to the northwest corner of the lands that we acquired in the land sale and it’s geologically position up penetrations horizontals and verticals over the last whatever 50 years out there.
It’s fully mappable from north to south and they have the large resource that we are anticipating would have similar type of economics to have Torquay play. Definitely that consistent trend.
Operator
Thank you. And that concludes our question and answer session.
I would now turn the call back over to Mr. Scott Saxberg.
Scott Saxberg
Great. Thank you, operator, and thank you everybody for participating in our 2017 third quarter conference call.
Thank you.
Operator
Thank you ladies and gentleman for participating in Crescent Point Energy 2017 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 great day.