Crescent Point stock jumps as analysts laud $912-million divestment in tough M&A market
CALGARY – In a depressed market for oil and gas assets, Crescent Point Energy Corp. announced deals Tuesday to sell $912 million worth of wells and properties in Utah and southeast Saskatchewan in a bid to repair its balance sheet.
“These transactions are a considerable step forward in our ongoing plan to focus our asset base,” Crescent Point president and CEO Craig Bryksa said on a conference call Tuesday announcing the transactions to sell production of 27,000 barrels of oil equivalent per day to unnamed buyers.
Crescent Point shares surged as much as 7 per cent to $4.48 per share after announcing the deals on Tuesday, even as the broader S&P/TSX Composite Energy Index fell roughly 1 per cent as oil prices declined. Analysts attributed the jump to Crescent Point managing to strike a deal at a reasonable valuation in a difficult environment for mergers and acquisitions in the energy industry.
“They actually got something done,” Eight Capital analyst Adam Gill said, adding the value of the transactions – $700 million for the assets in Utah’s Uinta basin and $212 million for the assets in southeast Saskatchewan – was reasonable given the challenges in striking deals in the sector.
Earlier this year, Calgary-based oilsands producer Cenovus Energy Inc. pulled a package of assets of the sale block when the offers it received were less than it was willing to accept.
Against this backdrop, analysts have been closely watching Crescent Point in its efforts to deleverage its balance sheet through divestitures in a new strategy announced in Sept. 2018.
At that time, the company said it planned to cut its workforce by 17 per cent and reduce its debt by $1 billion to reduce costs.
“Overall, transacting at the metrics they transacted at, is pretty attractive in this market and better than they were trading at,” Eight Capital’s Gill said, adding that there’s not as much pressure on the company’s management team to sell assets after this deal.
Crescent Point’s Bryksa said the company would use the proceeds to reduce debt and buy more of its own shares, which he called a “highly attractive opportunity.”
The company’s share price has been cut in half in the last year, from $8 per share to the $4 per share range, as investors were tired of waiting for a Crescent Point transaction, amid a wider rout in Canadian energy stocks.
Bryksa said the company is planning to use 30 per cent of its free cash flow — that’s the cash it generates after accounting for expenditures — to repurchase its own shares. This year, the company is now on pace to spend $125 million for share buybacks.
“As we execute on further dispositions, we’ll continue to revisit this,” Bryksa said, adding the company would consider using more cash to buy shares if it was able to sell other assets currently on the block. However, he reiterated that Crescent Point is still focused on reducing debt, which stood at $3.5 billion at the end of the second quarter.
The company said it expects its net debt will fall to $2.75 billion by the end of this year, which is down from $4.4 billion prior to when Bryksa became CEO in Sept. 2018.
“This should all resonate with investors in today’s environment, with the potential for additional sales bringing the company’s leverage position much closer to what investors are looking for in E&P companies today,” Raymond James analyst Chris Cox said in a research note.