Mar 7, 2019
Operator
Good morning, ladies and gentlemen. My name is Jessica, and I will be your call conference operator for Crescent Point Energy's Year End 2018 Conference Call.
This conference call is bring recorded today and will be webcast along with a slide deck which can be found on Crescent Point's website homepage. The webcast maybe not be recorded or rebroadcast without the expressed 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 period ending December 31, 2018, were announced this morning and are available on Crescent Point's website and on the SEDAR and EDGAR websites.
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. 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 website, 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 will now turn the call over to Brad Borggard, Senior Vice President, Corporate Planning and Capital Markets.
Please go ahead, Mr. Borggard.
Brad Borggard
Thank you, operator. I'd like welcome everyone to our year-end 2018 conference call.
With me are Craig Bryksa, President and Chief Executive Officer; Ken Lamont, Chief Financial Officer; and Ryan Gritzfeldt, Chief Operating Officer. We are also joined today by other members of our senior leadership team who may provide additional insight during the question-and-answer period at the end of the call.
As the operator highlighted, this conference call is being webcast, along with the slide deck which can be found on Crescent Point's website. I'll now pass things over to Craig to give us an overview of Crescent Point's activities and results in 2018.
Craig Bryksa
Thanks, Brad and thank you everyone for joining us today. As we look back at our 2018 results, we have several achievements to note during a year of transition from management, strategy and board perspective.
For those who are new to the Crescent Point story, we initiated a transition plan this past year that center ground our key value drivers of disciplined capital allocation, cost reductions and balance sheet improvement. By focusing on our operational efficiencies, and improving our capital allocation process, we executed our 2018 program $38 million under-budget while still exceeding our annual production targets.
During the year our team disposed approximately 7,000 Boe per day at attractive metrics for proceeds of over $355 million. We are currently marketing additional assets for sale including our high-quality southeast conventional properties and are progressing the monetization of certain infrastructure assets which we expect to be in the market very shortly.
On a reserve front, we organically increased reserves and grew our overall net asset value per share by 4% excluding the contributions from dividends paid during the year. As part of our transition plan, we directed our focus towards returns versus simple volume growth.
This shift has enhanced our capital allocation process which is based on a bottom-up, well-by-well analysis with each area of competing for capital based on risk-adjusted returns and our long-term development goals. In our 2019 budget we allocated additional capital to our key focus areas, identified cost reductions in our general administrative, operating and capital costs.
As a result of these changes, we now expect to generate capital efficiencies and full cycle returns that are approximately 15% to 20% stronger than the prior year. Our 2019 budget is also now expected to generate over $400 million of excess cash flow at current strip prices which we plan to direct towards net debt reduction and accretive share repurchases.
Since receiving approval for our normal course issuer bid in late January, we have repurchased approximately 1.3 million shares at an average cost of $3.89 per share, and we'll continue to be active on this program as we generate free cash flow during the year. I will now pass the call over to Ken to discuss our financial results.
Ken Lamont
Thank you, Craig. During the fourth quarter of 2018, we reported adjusted funds flow of $337 million or $0.61 per share fully diluted, and total capital expenditures of approximately $302 million.
During the year, our capital expenditures on drilling and development facilities and seismic totaled over $1.7 billion, or $38 million below our annual guidance. For the year of 2018, Crescent Point incurred a net loss of approximately $2.6 billion, including a non-cash after-tax impairment of approximately $2.7 billion.
Excluding this impairment, adjusted net earnings was a positive $235 million, or $0.43 per share fully diluted, up from the $100 million or $0.18 per share in the prior year. Our balance sheet now better reflects an approximation of the fair value of our assets in the current environment and incorporates a higher cost of capital.
The charge is not related to an underlying asset performance that does not impact the company's adjusted fund flow or the amount of credit available under it's bank credit facilities. Our net debt to adjusted funds flow at year end 2018 was 2.3x.
Based on current strip prices and our 2019 guidance, our net debt to adjusted fund flow is expected to improve to 2.0x excluding any proceeds from disposition. Our cash and unutilized credit capacity as of December 31, 2018 was approximately $1.6 billion with no material near-term maturities.
During the fourth quarter, our oil differentials in Canadian dollars widened to $23.34 a barrel, up from $10.74 a barrel in the third quarter, and this was over $11 of barrel stronger than [indiscernible] power prices. Based on realized pricing to-date and the forward curve, we expect our corporate oil differential to improve in the first quarter of 2019 to approximately $8.75 a barrel.
We expect this to drive a 15% improvement in our realized oil price versus the fourth quarter of 2018 despite a lower WTI price environment. I would also add that given the minimal size of our operations in Alberta, Crescent Point remains unaffected by the provincial [ph] government's recent production curtailment.
We believe our oil production will continue to receive a premium during these periods of increased market access constraints in Canada due to a significant portion of our assets located either downstream of recent [indiscernible] points or in the United States. We have multiple takeaway options for our crude and we are currently exploring new solution to further enhance overall realized price.
Subsequent to the fourth quarter, we resolved the National Energy Board complaint and legal action that resulted in a settlement in favor of Crescent Point. This agreement includes a revised hear-up [ph] that's expected to improve our netbacks for oil production, transported on Saskatchewan pipeline system, and a cash settlement payable to Crescent Point.
We expect the improved netback results from this agreement to contribute to our financial results starting in the second quarter of 2019. Before I pass the call over to Ryan to provide an update on our reserves and operations, I'd like to highlight our current commodity hedges as part of our overall risk-management program.
As of March 1, over 40% of our oil and liquid's production, net of royalty interest was hedged throughout 2019 and we are currently active in layering on new oil hedges extending through the third quarter of 2020. Ryan?
Ryan Gritzfeldt
Thanks, Ken. On a [indiscernible] basis, Crescent Point organically replaced 142% of it's 2018 production and achieved 2P reserves of 987.6 million Boe.
Excluding acquisitions and dispositions, Crescent Point added over 92 million Boe of 2P reserves in 2018 generating a 2P finding and development cost of $19.20 per Boe excluding changes in future development capital or FDC. This resulted in a recycle ratio of 1.9x supported by our strong operating netback of approximately $35.50 per Boe.
Including changes in FDC, our 2P recycle ratio was 1.4x. On a PDP basis, we replaced 115% of production with a recycle ratio of 1.5x, both including and excluding changes in FDC.
We did realize net technical revisions of negative 40.6 million Boe during the year which include a reduction of vertical drilling locations in the Uinta Basin as part of the company's asset review and increased focused on horizontal development. These technical revisions were more than offset by approximately 132 million Boe of new reserves assigned to extensions and improved recovery including our waterflood activities.
Waterflood additions continued to grow as a portion of our overall reserves and accounted for 21.5 million Boe or over 23% of our total 2P organic reserve additions. Since 2013, independent evaluators have assigned over 60 million Boe of low decline 2P waterflood reserves across our operations.
A key highlight in our reserves update is from our largest waterflood program in the Viewfield Bakken where we have generated a finding and development cost in 2018 of less than $9 per Boe, and an estimated base decline rate of approximately 25% in 2019. Our transition funds focused on consistently advancing decline mitigation techniques with approximately 145 new waterflood injectors budgeted in 2019, up from 79 completed in 2018.
Crescent Point's reserve additions in 2018 allowed us to increase our net asset value per share by approximately 4% based on a conservative flat price deck of US$55 per barrel, and excluding any value for land in seismic. At US$55 WTI, our total 2P now at year-end 2018 was $13.38 per share, which includes a blow-down value for developed producing reserves of $6.01 per share, not giving any value to our land in seismic.
As I close, I'd like to thank our field employees and contractors for their hard work and dedication over an extraordinarily long and cold winter. I'll now turn it over to Craig for closing remarks.
Craig Bryksa
Thank you, Ryan. We are on-track and committed to our transition plant and have made important changes within Crescent Point that have positively impacted our cost returns and overall free cash flow generation.
We expect to realize further improvements in our overall efficiencies as we continue to focus our asset base to a disciplined and flexible disposition process. Our team continues to advance our core areas and is on-track with our 2019 budget which remains unchanged with an annual average production of 170,000 to 174,000 Boe per day, and capital expenditures of $1.2 billion to $1.3 billion.
In closing, and on behalf of Crescent Point, I would like to thank Rene Amirault for his contributions during his tenure with our Board of Directors. Our company and shareholders have benefited from Rene'sfocus on capital discipline, strategy and along with strong governance as the Chair of our Environmental Health & Safety Committee.
As we move forward with our continued board renewal, I would also like to take this opportunity to welcome John Dielwart as a new Independent Director. I'm sure many of you know John, and are aware of his successes and significant oil and gas experience including those as one of the Founders and past CEO at Arc [ph] Resources.
Finally, before opening the line to questions, I would like to thank our shareholders for their support during this transition. I'll now turn it back to the operator.
Operator
[Operator Instructions] Your first question comes from Travis Wood of National Bank Financial.
Travis Wood
I wanted to have two questions for me this morning. The first, you've been marginally active on the buyback that was instituted later last year.
So it's cash flow in on our numbers we'd have around $300 million, I think you guys have talked about something around $400 million. So with that free cash flow for the year, how would you rank the use of that as we consider future buybacks, dividends or -- in a crazy world, dividends and -- or sorry, debt buybacks?
And then, in a different world, dividend growth?
Craig Bryksa
Thanks for the questions, it's actually nice to be not talking about that script. But the way we are looking at things and what we've messaged in the past is, we've targeted a payout ratio of 85% to 95%, all-in, including our share buybacks.
Right now we're generating -- with strip prices we're generating $400 million of excess cash, debt reduction is a pillar of our strategy and it's something that we are very committed to; so we've targeted off that $400 million, we've targeted about 70% to 80% of that towards debt reduction with a remainder then going to share buybacks. And then any additional proceeds that we receive -- that come in the door through our disposition process on both, the infrastructure and the assets, we'll reassess those at that time as well.
Travis Wood
And then another question, if I can around the reserves, looking through the rack [ph], there is about 41 million Boe's that have been technical revisions on the downside but you've had some incremental gains, somewhere in the magnitude of 130 million. Can you help us understand or if possible, provide us kind of some asset commentary around both, the technical revisions, as well as the extensions?
Craig Bryksa
Sure. One thing I'd like to stress to Travis is keep in mind, we're really a new team in place since September, we've recognized early on there is a few things we want to get behind us and start moving forward.
And I think as we -- what we've laid out today in the press release has a good step in that direction, I think everything on -- that we've looked at over the last 6 to 9 months is now behind us and I think everything that we're looking to do moving forward is going to really increase the valuation going forward. So I'd -- with the question on the technical reserves, maybe I'll pass that to Ryan and he can speak to that.
Ryan Gritzfeldt
Yes, on the technical revisions, so -- as mentioned, the reduction in Utah future vertical drilling locations was a significant portion of our total negative technical revisions as we're shifting our focus more on horizontal well developments in Utah as part of our asset review. And there can be noise around locations, again, as part of our asset review, if some older sale locations are removed, they are classified as a negative technical revision.
But then if you add new locations, even if they are in the same area, they get classified under extensions and improved recovery; and kind of in a similar regard on well-by-well performance, we have some negative technical revisions spread across our areas on a well-by-well basis. But waterflood reserve adds do not offset those in the reserves rec [ph] table, they are showed up as extensions and improved recovery.
So often times you have to look at the technical revisions and the extensions and improved recovery categories and the rec [ph] table as a whole.
Travis Wood
So fair to say net-net as locations where you've been reclassified amongst the asset portfolio? Net-net a positive re-through as you guys are seeing it from the engineers perspective?
Ryan Gritzfeldt
Yes, I would say so. 132 million of extensions and improved recovery versus negative technical of minus 40 million.
Operator
Your next question comes from Juan Jarrah of TD Securities.
Juan Jarrah
Just a follow-up on Travis's question; just curious what the successful dispositions this year, and obviously the free cash flow you're generating, and not to mention the cash that you're generating from those divestitures. Would you look to accelerate CapEx to replace some of those volumes that you would have divested?
Craig Bryksa
Right now, so that -- JJ, that's a good question, it's one we get quite a bit on the road. But right now we are definitely committed to the budget that we've laid out, as dispositions are executed, we'll look to take that capital -- for the most part take that capital out of the program with the focus being on the balance sheet and debt reduction.
So you don't look for us to go in and accelerate any growth on the backend of a disposition, we're going to stay extremely disciplined and committed to what we've laid out in the past. So there will be more of a focus around returns in the balance sheet.
Juan Jarrah
And looking into 2020, would you employ a similar mentality in terms of spending 85% to 90% of your cash flow or how would you think about that?
Craig Bryksa
We'll see how the dispositions on that front shake out, JJ. I mean overtime, we've got a lot here in the Hopper [ph], right now we've got the 21,000 Boe per day as a conventional assets out there.
We're going to have infrastructure rolling out the door here shortly, which is something that we're excited about. At the same time we've got some mirens [ph] in the fire on the backend and some other things, so we'll see how that all plays out.
With the target though and the new team remaining committed and disciplined to live-in within cash, and focus mainly on that. All -- everything we do though will still be based on returns and driven on returns.
Juan Jarrah
And then the last question for me is, maybe some commentary on declines. Clearly, you're having success and you filled Bakken with declines of 25%.
Just curious where you're declines are for this year? Maybe where you expect to exit this year?
And how dispositions might impact that decline?
Craig Bryksa
Right now our corporate decline is around that 30%. Dispositions and how we feel it will be throughout the year, that will be relatively unchanged, I'd say it's probably going to be fairly static at that.
Obviously, that depends on what assets that do move out the door and what stay in the door but we've messaged this in the past where -- if we were to take that 50,000 barrels a day that we've identified and did that all -- that transaction all at once, it would only move our corporate decline by 2%. So either way, we're going to be in and around that 30% start -- kind of end of the year.
Does that make sense?
Juan Jarrah
Yes, it does. 2% which way?
Craig Bryksa
If everything at once, it'd be 2% the other way, up.
Operator
Your next question comes from Brian Christensen of Macquarie [ph].
Unidentified Analyst
Craig, is there a firm bid due [ph] on the southeast SAS package or is that going to stay open-ended?
Craig Bryksa
I wouldn't say it's firm Brain, we've got a date in mind that we're just going to lay out here shortly to all the parties that are in the data room right now but it's Q1 timing on bid deadlines.
Operator
[Operator Instructions]. There are no further questions at this time.
Please proceed.
Craig Bryksa
I'd like to thank everybody for joining the call today. If you have any questions, please reach out to our IR Group.
Phones are always on. Thanks everybody.
Operator
Crescent Point's Investor Relations department can be reached at 1-855-767-6923. Thank you.
Have a good day.