Crescent Point Energy: A Cash Generating Machine

The oil and gas industry has had its fair share of ups and down in recent years. While the industry suffered from a significant crash at the height of the pandemic it has come roaring back and is having a banner year.

Companies in the industry are now flush with cash and shareholders are reaping the benefits. Case in point, Crescent Point Energy (CPG) recently announced its Fiscal Year 2022 budget, which included an increased return of capital to shareholders.

Given the significant cash this company is generating, I am bullish as the price of oil is expected to maintain current levels over the medium term. (See Analysts’ Top Stocks on TipRanks)

Fiscal 2022 Budget

Crescent point is expecting capital expenditures in the $825 million to $900 million range. This is unchanged from preliminary guidance.

What has changed, is that it has increased production guidance to 133,000-137,000 barrels of oil equivalent per day (boe/d), from 131,000 to 135,000 boe/d previously. Furthermore, the company is delivering higher-than-anticipated well cost reductions at Kaybob Duvernay, which now total approximately 15%.

Thanks to a higher production and lower cost profile, the company is looking at excess cash flows of $750 million to $1 billion in FY 2022.

There is also the added assumption that the price of West Texas Intermediate (WTI) will hover between $65/bbl and $75/bbl. What does this mean? Should the price of WTI remain stable through the balance of the year, the company’s capital program will be fully funded by internal cash flows.

It also means that there is plenty of room to return cash to shareholders.

Return of Capital Plan

Along with guidance, the company announced a 50% raise to its dividend. It declared a $0.045 per share quarterly dividend, up from the $0.03 dividend paid previously. On an annual basis, that is equal to $0.18 per share and based on current shares outstanding, the company will be expected to pay out approximately $100 million in dividends.

Assuming the low end of cash flow guidance is met, the dividend will only account for 13.3% of excess cash flow. To top things off, the company also announced a $100-million share buyback, which it expects to complete within the next six months.

Equally as encouraging is the fact that the company has some wiggle room to meet these shareholder return targets, even if the price of oil drops to levels below $65/bbl. In fact, the company expects to be able to fully fund capital expenditures and planned returns of capital to shareholders at prices of approximately $40/bbl.

Debt Repayment

What will the company do with the excess cash on hand? Crescent Point intends on improving its debt profile. The company has already reduced its credit facilities, and expects to exit the year with a leverage ratio at or below 1.0 times net debt-to-adjusted funds flow.

Growing production and lower expenses leads to an increase in margins and greater cash flows. In turn, that cash flow is being used to not only reward shareholders, but to improve the company’s financial situation.

Crescent Point is likely to thrive in the current environment. While the company’s share price will ultimately be linked to the price of oil, it is taking advantage of today’s prices to better position itself in the event of another price crash.

Wall Street’s Take

From Wall Street analysts, Crescent Point Energy earns a Strong Buy analyst consensus based on six Buy ratings, two Hold ratings, and no Sell ratings.

The average Crescent Point price target of $6.70 puts the upside potential at 32.2%.

Disclosure: At the time of publication, Mat Litalien did not have a position in any of the securities mentioned in this article.