Crescent Point Energy Corp. (TSX: CPG) is trading at a discount to its peers despite having high-quality oil and natural gas assets
SmallCapPower | August 24, 2017: Crescent Point Energy Corp. (TSX: CPG) is a conventional oil and gas producer with high-quality light and medium oil and natural gas assets across western Canada and the U.S. Unlike other oil and gas stock prices, which typically mirror the underlying oil price, the share price of Crescent Point Energy is trading much lower compared to the trend in WTI crude prices. Its current share price of $8.68 is down more 60% from the May 2016 high of $23.16. With production increases in 2017 and beyond, and an expected recovery in oil prices, the stock could appreciate significantly compared to the other oil plays. In terms of EV/EBITDA too, Crescent Point Energy trades at a lower 21.6x versus the peer average of 30.0x.
Investment thesis
- Holds high quality and large assets with significant resources
- Prediction outlook for 2017 upwardly revised
- Strong balance sheet
High-quality assets
Through its clearly defined strategy of acquiring new assets and developing existing ones, Crescent Point Energy has over the years built a large and high-quality portfolio of light and medium oil and natural gas assets across western Canada and the U.S. While acquisition efforts were focused in core areas in southern Saskatchewan, Crescent Point Energy continues to strategically target emerging plays such as the Bakken/Three Forks and the Uinta Basin. All these efforts have resulted in a large and diversified portfolio of assets encompassing large oil-in-place conventional plays, large low-risk resource plays, and early-stage development plays.
Significant reserves growth through acquisitions
Undeveloped resource base of >23 Bbbls: Crescent Point Energy has Original oil in place (OOIP) of > 23 billion barrels of oil with only 3% recovered to date, which shows vast exploration potential over the next several years. Currently Crescent Point Energy has ~8,085 net drilling locations within low cost, high-return basins (~14,850 including unrisked locations) and added ~1,000 new net risked locations per year on average over the last four years.
Increasing production
Crescent Point Energy reported a 5% increase in production for 2Q17 to 175,615 boe/d and consequently the full year 2017 guidance has been upwardly revised to 174,500 boe/d from 172,000 boe/d. One of the 2017 priorities for Crescent Point Energy is to execute organic exit production growth of 10%.
Strong balance sheet
As of June 30, 2017, Crescent Point Energy had manageable net debt of $3.9 billion and has no near-term debt maturities. Crescent Point Energy also has unused credit capacity of $1.5 billion that can be availed for the Company’s capex requirements for exploration and development activities.
Valuation and outlook
Compared to other oil peers’ share prices that are highly correlated and track the underlying oil price, the share price of Crescent Point Energy has fallen much more than the oil price over the past several months. The stock also looks attractive given its low EV/EBITDA multiples of 21.6x compared to the peer group’s 30.0x. With a robust outlook for production in 2017 and beyond, improving efficiencies, and manageable debt, the Company’s financials should improve going forward, which in turn could drive its share price.
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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