Calgary-based Crescent Point Energy, a trailblazer in the use of horizontal drilling and multistage fracturing to commercialize Saskatchewan’s tight-oil plays, is working on twin-pronged objectives — continuing additions to its portfolio of resource plays through acquisitions and weighing expansion into North Dakota’s Bakken.
Chief Executive Officer Scott Saxberg laid out the strategy on the heels of Crescent Point’s announcement that it has reached a deal to take over junior producer Cutpick Energy for C$425 million, ending a year-long lull in its expansion plans after spending about C$2 billion in 2010 while it searched out the right target.
He said the time for deal making is ripening again because of the plunge to decade-low natural gas prices, which are forcing junior producers to unload their oil and liquids holdings to support drilling programs as investors avoid the equity markets.
Saxberg said there are still “a few opportunities” in Crescent Point’s core tight oil plays in Western Canada and “we’d obviously like to consolidate over the next six to 12 months.”
Cutpick production mainly in Viking play
In addition, he said his company has its eye on prospects in North Dakota to apply its expertise in the Williston basin.
The acquisition of privately held Cutpick, which includes the assumption of C$83 million in net debt, includes about 5,600 barrels of oil equivalent per day weighted about 65 percent to light oil, mainly in the Viking resource play in the Halkirk area of east-central Alberta.
The junior company’s proved plus probable reserves are estimated at 20.5 million boe, 12.2 million boe of them proved reserves, more than 300 net Viking drilling locations and tax pools estimated at C$260 million.
Crescent Point said it is paying C$73,036 per producing boe and gaining a proved plus probable reserve life index of 10 years.
The Cutpick price reflects a value of C$6.04 per Cutpick common share based on a five-day weighted trading average price of C$43.13 per Crescent Point share.
Cutpick said it has drilled 103 Viking horizontal wells, with a 100 percent success rate, in the Halkirk Viking fairway.
Incorporation of its assets will boost Crescent Point’s Provost area production to 7,500 boe per day from the current 2,000 boe per day, making Provost its third-largest producing area after its Bakken and Lower Shaunavon areas in Saskatchewan.
Sold 900 boe
in non-core Alberta assets
Separately, Crescent Point said it completed the sale to a private producer of about 900 boe per day of non-core Alberta assets, 80 percent weighted to natural gas, and almost 13,000 acres of undeveloped land, for a total consideration of C$35 million.
Assuming completion of both transactions, Crescent Point’s average daily production this year is expected to reach more than 88,500 boe per day, making it Canada’s fifth-largest independent producer. The exit rate for 2012 is targeted at 97,500 boe per day.
Capital spending for this year will also rise by C$50 million to C$1.25 billion, with about C$30 million of the increase expected to be spent on drilling and completions, primarily in the Viking light oil resource play.
The Viking assets complement and consolidate Crescent Point’s existing position in the Alberta and Saskatchewan Viking play and, the company said, are consistent with its strategy of acquiring large oil-in-place assets with high-netback oil production and long-term upside through the application of horizontal infill drilling using multistage fracturing stimulation.
The company also believes there is significant waterflood potential it Cutpick’s assets.
Saxberg said Crescent Point will have greater flexibility to more equipment and manpower among its Shaunavon, southern Alberta Bakken and Viking areas.
Can do ‘pretty much any deal’
AltaCorp Capital analyst Don Rawson said that since Crescent Point shares trade at a premium, its valuation relative to cash flow, production and reserves means it can do “pretty much any deal” it wants.
Although unwilling to speculate on what more assets it might acquire, he would not be surprised to see another deal.
Desjardins Securities analyst Allan Stepa said he expects Crescent Point to remain “very active” on the M&A front as it “continues to leverage its premium valuation to consolidate holdings in its core operating areas.”
One of 8 producers active in Exshaw
While concentrating on its most productive prospects, Crescent Point is one of about eight producers active in the Exshaw/Bakken area of southern Alberta, where operators are trying to figure out the best way to drill those rocks.
Jon Noad, the Canadian exploration manager with Murphy Oil, told a Canadian Energy Research Institute conference in late April that about 25 wells have been drilled into the play over the last year at a cost of C$7 million-C$12 million each.
“There’s a variety of sediments which you’re going to have to try and target with your horizontal well and your fractures to try and produce,” he said.
“The jury’s still a little bit out about the best way to drill into these rocks,” he said, noting that the reason a lot of the wells are non-commercial has nothing to do with the geology, but applies more to what kind of pressure has been applied to break the rocks open, what has been used to hold them open and where the wells have been targeted.
