ALBERTA

Crescent Point Energy Reducing Capital Budget By 28 Per Cent

01/06/2015 08:16 EST | Updated 03/08/2015 05:59 EDT
CALGARY - As oil prices hit lows not seen in more than five and a half years, Crescent Point Energy Corp. is expecting some reprieve thanks to its hedging contracts and lower drilling costs.

The U.S. crude oil benchmark was at around US$48 a barrel in Tuesday trading in New York, continuing its precipitous decline from highs around US$107 during the summer.

But Crescent Point (TSX:CPG) said it has entered into hedging contracts to sell more than half of its production at prices well above current market levels at an average of C$90, or US$76 given current foreign exchange rates.

Still, the oil-focused company, with operations across the Prairies, is planning to spend 28 per cent less in 2015 than last year, with a capital budget of C$1.45 billion. At the same time, it expects its output to grow by nine per cent to an average of 152,500 barrels per day.

Crescent Point also expects firms that provide drilling and other services will be more willing to sharpen their pencils in the current market.

The budget assumes a 10 per cent drop in service costs, with further savings likely the longer the oil rout persists.

"When prices fell dramatically in 2008 to 2009, we were able to realize a 30 per cent reduction in our Bakken drilling and completions costs," said CEO Scott Saxberg, referring to an oil deposit in southeastern Saskatchewan and North Dakota where Crescent Point has a big presence.

"We'll be working hard with our service providers and fully expect to see rates come down even more than they already have."

Crescent Point said it would maintain its monthly dividend at 23 cents per share.

"We would not expect a cut unless oil prices remain near the US$50 a barrel level for a prolonged period of time (likely into late 2015), as we expect it to continue managing debt levels through lower spending," Desjardins Capital markets analyst Kristopher Zack wrote in a note to clients.

Zack added he would not be surprised to see Crescent Point make opportunistic acquisitions or to sell interests in some of its infrastructure, much like Encana Corp. (TSX:ECA) did recently with its gas gathering and compression infrastructure in northeastern B.C.

About 91 per cent of the budget is allocated to Crescent Point's core areas in southern Saskatchewan and central and southern Alberta, with the rest for other properties in Alberta, Saskatchewan, North Dakota and Manitoba.

"In this commodity price environment, our 2015 budget plans are disciplined," said Saxberg.

Shares in Crescent Point were up about 1.9 per cent at $25.53 in Tuesday afternoon trading on the Toronto Stock Exchange, while the energy sector as a whole was off by about 2.5 per cent.

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