Crescent Point Energy announces strategic Uinta Basin cash acquisition of Ute Energy

Friday, November 2, 2012      
 
  • Under the terms of the Ute Acquisition, Crescent Point has agreed to pay US$784 million of cash consideration for Ute and expects to assume approximately US$77 million of Ute net debt.
  • The successful completion of the Ute Acquisition is expected to establish a new core area for long-term growth for Crescent Point.

Crescent Point Energy Corp. (TSX:CPG) is pleased to announce that it has entered into a purchase and sale agreement (the "Ute Acquisition") to acquire Ute Energy Upstream Holdings LLC ("Ute"), a privately held oil and gas producer with current production of approximately 7,800 boe/d and approximately 590 (270 net) sections of land in the centre of the Uinta Basin light oil resource play in northeast Utah. The Company believes this multi-zone, large oil-in-place resource play has significant upside potential through the application of vertical and horizontal infill drilling and multi-stage fracture stimulation. Total consideration for Ute is approximately US$861 million (CDN$861 million based on a US$/CDN$1.00 exchange rate), including cash consideration of US$784 million plus assumed debt.

"We're excited about establishing this initial position in the Uinta Basin," said Scott Saxberg, president and CEO of Crescent Point. "This resource play is a new core area for Crescent Point and is consistent with our strategy of acquiring high-quality, large oil-in-place pools with long-term upside potential. We believe we can apply the extensive horizontal multi-stage fracture stimulation expertise that we've developed in Canada to the Uinta Basin to deliver long-term value to our shareholders."

In addition, and assuming the successful completion of the Ute Acquisition on or about November 30, 2012, Crescent Point is upwardly revising its 2012 capital expenditure plans and production guidance. Capital expenditures are expected to increase by CDN$150 million to CDN$1.4 billion, with a portion of the increase expected to be allocated to development capital on the acquired Ute assets. The remainder of the increase is expected to be spent on drilling and completions, building upon the Company's drilling success to date in 2012, as well as land and facilities.

Incorporating successful production results to date and assuming the successful completion of the Ute Acquisition, the Company's average daily production in 2012 is expected to increase to more than 97,000 boe/d from 95,000 boe/d and its 2012 exit production rate is expected to increase to more than 109,000 boe/d from 100,000 boe/d.

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Crescent Point also announces that it has entered into an agreement, on a bought deal basis, with a syndicate of underwriters co-led by BMO Capital Markets, RBC Capital Markets and CIBC, and including Scotiabank, TD Securities Inc., FirstEnergy Capital Corp., National Bank Financial Inc., GMP Securities L.P., Macquarie Capital Markets Canada Ltd. and Peters & Co. Limited for an offering (the "Offering") of 18,750,000 Crescent Point shares at CDN$40.00 per share to raise gross proceeds of approximately CDN$750 million. Crescent Point has also granted the underwriters an over-allotment option to purchase, on the same terms, up to an additional 2,812,500 Crescent Point shares. This option is exercisable, in whole or in part, by the underwriters at any time up to 30 days after closing. The maximum gross proceeds raised under the Offering will be approximately CDN$863 million, should this option be exercised in full. Closing is expected to occur on or about November 21, 2012, and is subject to customary regulatory approvals.

UTE ACQUISITION

Under the terms of the Ute Acquisition, Crescent Point has agreed to pay US$784 million of cash consideration for Ute and expects to assume approximately US$77 million of Ute net debt. The Ute Acquisition is expected to close on or about November 30, 2012.

The acquisition is consistent with the Company's strategy of acquiring large oil-in-place assets with high-netback oil production and long-term upside through the application of vertical and horizontal infill drilling using multi-stage fracture stimulation. Crescent Point believes there is also significant potential upside in Ute's large undeveloped land base, which is located in the centre of the Uinta Basin resource play and has attractive land tenure terms.

Ute's assets are located in the central basin, which is the intersection between two main oil-bearing plays within the Uinta Basin: Monument Butte and Altamont-Bluebell, which have been producing for more than 50 years. Exploration and Development Agreements ("EDAs") with the Ute Indian Tribe govern more than 150 net sections of land that the Company expects to acquire in the central basin, of which the majority is undeveloped. The lands governed by these EDAs were released for development less than 10 years ago. The majority of the EDAs were issued in the last five years and all of the EDAs contain extension provisions regarding drilling commitments that have the potential to provide the Company with up to an initial 15-year term to develop this inventory, which will provide significant operational flexibility relative to other U.S. opportunities.

"The exploration and development agreements provide a strong operating environment and an aligned partnership with the Ute Tribe," said Saxberg. "We have met with the business committee members of the tribe and look forward to a successful, long-term relationship with them as we develop this high-quality asset base."

"On behalf of the Ute Tribe Business Committee, we are pleased to have another quality operator of Crescent Point's capabilities and financial strength operating on our lands and look forward to a long and successful relationship," said Irene C. Cuch, Chairwoman of the Ute Tribe Business Committee.

Key attributes of the Ute assets to be acquired:

  • Current production of approximately 7,800 boe/d, of which 88 percent is weighted to oil and liquids, and 24 net wells recently drilled but not yet completed;
  • Approximately 270 net sections of land in the centre of the Uinta Basin resource play, of which 245 net sections are undeveloped and more than 150 net sections are governed by the EDAs;
  • More than 1,000 net internally identified low-risk drilling locations, of which 253 net proved plus probable locations have been booked to reserves pursuant to an independent engineering report prepared in compliance with NI 51-101;
  • More than 400 net of the internally identified drilling locations are in the Randlett area, which is 100 percent operated, and are low-risk vertical infill wells;
  • Netback of approximately US$40.00/boe based on US$90.00/bbl WTI and US$3.75/MMBtu Henry Hub;
  • Production from the various zones of the central basin is marketed as Yellow wax crude (42° API) and Black wax crude (32°API), which currently trade at a differential to $US WTI of approximately 16 percent to 18 percent;
  • Operating costs of approximately US$9.00/boe, transport costs of approximately US$3.00/boe and royalties of approximately 23 percent; and
  • Tax pools estimated at US$861 million.

Reserves Summary

Independent engineers at GLJ Petroleum Consultants have assigned reserves utilizing NI 51-101 reserve definitions and effective November 30, 2012, as follows:

  • Approximately 55.1 million boe of proved plus probable and 37.6 million boe of proved reserves; and
  • Reserve life index of 19.4 years proved plus probable and 13.2 years proved.

ACQUISITION METRICS

Based on the above expectations for the Ute Acquisition, and after adjusting for estimated land value of US$111 million (approximately US$700 per acre for undeveloped land), the estimated acquisition metrics for the assets expected to be acquired are as follows:

1. 2012 Cash Flow Multiple:
- 6.5 times based on production of 7,800 boe/d (US$90.00/bbl WTI, US$3.75/MMBtu Henry Hub and US$/CDN$1.00 exchange rate)
2. Current Production Multiple:
- US$96,154 per producing boe based on 7,800 boe/d
3. Reserves Multiple:
- US$13.61 per proved plus probable boe
- US$19.95 per proved boe

The Ute Acquisition is expected to be immediately accretive to Crescent Point on a per share reserves, production and cash flow basis.

STRATEGIC RATIONALE

The successful completion of the Ute Acquisition is expected to establish a new core area for long-term growth for Crescent Point. Consistent with the Company's early recognition of other world-class resource plays such as Viewfield Bakken, Lower Shaunavon and Beaverhill Lake, Crescent Point sees upside potential in the Uinta Basin.

The Uinta Basin in northeast Utah has been producing light oil since the 1950s and, in recent years, has experienced a resurgence in activity with the application of new drilling and completions techniques. Through the application of infill drilling and multi-stage fracture stimulation to both vertical and horizontal oil wells, Crescent Point believes greater potential can be unlocked in the resource play. To develop and exploit the multiple zones in the play, Crescent Point expects to drill both vertical and horizontal wells and to apply infill drilling.

"In the main operated area of Randlett, we are acquiring approximately 70 net sections of land and have internally identified more than 400 net drilling locations," said Saxberg. "This area is currently producing more than 4,000 boe/d and provides for low-risk development with strong economic returns."

The Ute Acquisition is expected to provide low-risk production growth potential over the coming years. The Company's near-term growth plan for the Uinta Basin is for moderate growth, similar to other new areas the Company has developed in Canada. Good service availability combined with favourable land tenure provides the Company with significant operational flexibility to determine the optimal development plan for the Ute assets. This will allow for proper integration and potential long-term value creation as Crescent Point develops and expands the play within its existing portfolio of assets. There are currently 24 operated wells drilled but not yet completed that will provide for short-term production growth to the area in early 2013. Crescent Point is currently building its 2013 corporate budget, which will be announced late in the fourth quarter of 2012.

"The Ute acquisition adds another significant resource play to our portfolio," said Scott Saxberg. "These assets have large oil-in-place and high quality reserves with strong upside potential. We see great opportunities in the Uinta Basin."

FINANCIAL AND STRATEGIC ADVISORS

BMO Capital Markets and RBC Capital Markets are acting as financial advisors to Crescent Point with respect to the Ute Acquisition. Evercore Partners is acting as strategic advisor.

Tudor, Pickering, Holt & Co. is acting as financial advisor to Ute with respect to the Ute Acquisition. Credit Suisse Securities (USA) LLC is acting as strategic advisor to Ute.

PRELIMINARY SUMMARY OF CRESCENT POINT'S THIRD QUARTER RESULTS

Crescent Point anticipates releasing its unaudited third quarter 2012 operating and financial results on November 8, 2012, and hosting a conference call the same day at 10 a.m. MT (12 p.m. ET). To provide further clarity on the pro forma guidance related to the Ute Acquisition and the bought deal financing, Crescent Point provides the following summary of its anticipated third quarter results:

  • Crescent Point expects third quarter 2012 average daily production of approximately 99,500 boe/d;
  • The Company expects third quarter 2012 cash flow to be approximately CDN$380 million (CDN$1.13 per share - diluted);
  • The Company expects fully diluted shares outstanding at September 30, 2012, to be approximately 355 million; and
  • The Company expects net debt to be approximately CDN$1.45 billion as at September 30, 2012.

UPWARDLY REVISED 2012 GUIDANCE

Crescent Point continues to execute its business plan of creating sustainable value-added growth in reserves, production and cash flow through management's integrated strategy of acquiring, exploiting and developing high-quality, long-life light and medium oil and natural gas properties in United States and Canada.

Assuming the successful completion of the Ute Acquisition on or about November 30, 2012, Crescent Point is upwardly revising its 2012 capital expenditure plans, production and funds flow from operations guidance. These changes include a number of consolidation acquisitions in the Company's core Beaverhill Lake and Shaunavon areas that closed in third quarter 2012 or are expected to close in fourth quarter 2012. Total consideration expected to be paid for the consolidation acquisitions is approximately CDN$65 million, of which approximately CDN$20 million closed in third quarter, and the production expected to be acquired is approximately 450 boe/d.

Capital expenditures are expected to increase by CDN$150 million to CDN$1.4 billion, with a portion of the increase allocated to development capital on the acquired assets. The remainder of the increase is expected to be spent on drilling and completions, building upon the Company's drilling success to date in 2012, as well as land and facilities.

The Company's average daily production in 2012 is expected to increase to more than 97,000 boe/d from 95,000 boe/d and its 2012 exit production rate is expected to increase to more than 109,000 boe/d from 100,000 boe/d.

Funds flow from operations for 2012 is expected to be approximately CDN$1.59 billion (CDN$4.81 per share - diluted), based on forecast pricing of US$94.25 per barrel WTI, CDN$2.30 per mcf AECO gas and a US$/CDN$1.00 exchange rate.

Crescent Point's balance sheet remains strong, with projected average net debt to 12-month cash flow of approximately 1.0 times and significant unutilized credit capacity.

The Company continues to implement its disciplined hedging strategy to provide increased certainty over cash flow and dividends. As at October 31, 2012, the Company had hedged 56 percent, 54 percent, 35 percent, 17 percent and 3 percent of its expected oil production, net of royalty interest, for the balance of 2012, 2013, 2014, 2015 and the first quarter of 2016, respectively. Average quarterly hedge prices range from CDN$88 per bbl to CDN$94 per bbl.

The Company's upwardly revised guidance for 2012 is as follows:


Production

Prior

Revised
Oil and NGL (bbls/d) 86,400 88,167
Natural gas (mcf/d) 51,600 53,000
Total (boe/d) 95,000 97,000
Exit (boe/d) 100,000 109,000
Funds flow from operations ($000) 1,470,000 1,590,000
Funds flow per share - diluted ($) 4.53 4.81
Cash dividends per share ($) 2.76 2.76
Capital expenditures (1)
Drilling and completions ($000) 1,043,000 1,177,000
Facilities, land and seismic ($000) 207,000 223,000
Total ($000) 1,250,000 1,400,000
Pricing
Crude oil - WTI (US$/bbl) 94.00 94.25
Crude oil - WTI (CDN$/bbl) 94.95 94.25
Corporate oil differential (%) 17 14
Natural gas - Corporate (CDN$/mcf) 2.40 2.30
Exchange rate (US$/CDN$) 0.99 1.00

(1) The projection of capital expenditures excludes acquisitions, which are separately considered and evaluated.

BOUGHT DEAL FINANCING

Crescent Point has entered into an agreement, on a bought deal basis, with a syndicate of underwriters co-led by BMO Capital Markets, RBC Capital Markets and CIBC, and including Scotiabank, TD Securities Inc., FirstEnergy Capital Corp., National Bank Financial Inc., GMP Securities L.P., Macquarie Capital Markets Canada Ltd. and Peters & Co. Limited for an offering of 18,750,000 Crescent Point shares at CDN$40.00 per share to raise gross proceeds of approximately CDN$750 million. Crescent Point has also granted the underwriters an over-allotment option to purchase, on the same terms, up to an additional 2,812,500 Crescent Point shares. This option is exercisable, in whole or in part, by the underwriters at any time up to 30 days after closing. The maximum gross proceeds raised under this offering will be approximately CDN$863 million, should this option be exercised in full. Closing is expected to occur on or about November 21, 2012, and is subject to customary regulatory approvals.

The offering will be a bought underwritten public issue in all provinces of Canada by way of a short form prospectus. The offering will be offered for sale to Qualified Institutional Buyers in the United States, pursuant to the registration exemptions provided by Rule 144A of the Securities Act of 1933 and internationally, as permitted.

The net proceeds of the offering will be used to fund a portion of the Ute Acquisition and a number of consolidation acquisitions in the Company's core Beaverhill Lake and Shaunavon areas that closed in third quarter 2012 or are expected to close in fourth quarter 2012. Total consideration expected to be paid for the consolidation acquisitions is approximately CDN$65 million, of which approximately CDN$20 million closed in third quarter, and the production expected to be acquired is approximately 450 boe/d. Closing of the bought deal financing is not, however, subject to the successful completion of the Ute Acquisition or any of the consolidation acquisitions.


 

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Crescent Point Energy Canada North America Acquisitions & Mergers Finance Operations Update Production Update Fracking


This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More


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