Crescent Point Energy is setting a sizzling pace in the ranks of Canada’s intermediate-size producers by landing a C$1.1 billion takeover deal that makes it a leading-edge performer in the Torquay, a hot sub-Bakken play in the southeast corner of Saskatchewan that is tied to North Dakota’s Three Forks.
The transaction, which involves C$750 million in cash and shares and C$348 million in net debt, will see Crescent Point acquire 166,000 net acres of land and production of about 10,000 barrels of oil equivalent per day from privately held CanEra Energy.
It was announced only nine days after Crescent Point said it has raised its Torquay production from zero to 5,100 boe per day within the last year by drilling 36 horizontal wells.
Company Chief Executive Officer Scott Saxberg said two aspects of the deal “fit really well with our business plan for stable, long-term growth.”
“The assets consolidate and complement our conventional assets and will generate significant free cash flow, and the Torquay land we gain provides further exposure and upside potential in a play that we are very excited about,” he said.
Incorporating the CanEra assets allows Crescent Point to adjust its 2014 exit guidance to 145,000 boe per day, while its average daily production for the year is now set at 133,000 boe per day.
Cash flow is expected to rise by 6 percent to C$2.38 billion, while capital spending for the year is targeted to grow by 1.4 percent or C$25 million.
Torquay and Flat Lake access
Completion of the deal will increase Crescent Point’s Torquay exposure in its core Flat Lake area of Saskatchewan by 27 percent to almost 180,000 net acres, with CanEra holdings contributing 38,000 net acres.
Crescent Point also disclosed that it has delineated a “significant” Torquay discovery and closure of the CanEra deal will give it 480 low-risk Torquay drilling locations.
Saxberg said his company’s “successful track record of finding and developing new resource plays” will benefit from “increased exposure on the greater exploration trend” in the Flat Lake area.
He said the low decline rate of CanEra’s assets “should work in tandem with our successful waterflooding programs in the Bakken and Shaunavon to continue lowering our corporate decline rate and to enhance the dual-track growth plan we’ve implemented.”
Crescent Point said independent engineers assigned reserves effective April 30 of 52.1 million boe of proved plus probable and 34.4 million boe of proved reserves, providing a reserve life index of 14.3 years for 2P reserves and 9.4 years for proved reserves.
Acquisition metrics
The acquisition metrics for CanEra are estimated at C$111,400 per producing boe based on 10,000 boe per day, with 2P reserves at C$21.38 and proved reserves at C$32.39, based on price forecasts of US$100 per barrel for West Texas Intermediate and C$4.65 per thousand cubic feet at the AECO hub.
CanEra previously built and sold CanEra Resources to Legacy Oil + Gas for C$583 million in 2010 and did four transactions in 2012 to assemble the assets it is selling to Crescent Point.
CanEra Chief Executive Officer Paul Charron told the Calgary Herald that the deals were not necessarily tied to the Torquay, noting the Three Forks/Torquay formation was primarily in North Dakota.
“It wasn’t necessarily our focus, but we were aware of the potential opportunity as we were acquiring the assets,” he said.
CanEra’s current output, which is 97 percent oil, comes from the Bakken and Mississippian formations, which are developed through horizontal drilling and multistage fracturing.
Saxberg said the Torquay is underexplored compared with the Bakken, although it has become a large producing zone in North Dakota.
