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Crescent Point Deal and TMX Completion Fuel Activity in Canadian Oil Market
May. 07, 2024 01:50PM PST
Crescent Point Energy announced plans to divest non-core assets in Saskatchewan to Saturn Oil & Gas in a C$600 million deal.
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Crescent Point Energy (TSX:CPG,NYSE:CPG) has struck a deal with Saturn Oil & Gas (TSX:SOIL,OTCQX:OILSF) to divest certain non-core assets in Saskatchewan as part of its long-term sustainability plan.
“This transaction allows us to realize value for these non-core assets which had limited impact in the Company’s future plans while continuing to focus on our priorities of operational execution, optimizing our balance sheet and increasing our return of capital,” said Craig Bryksa, president and CEO of Crescent Point, in a company press release.
The strategic move involves the sale of assets, including Flat Lake and Battrum, for cash consideration of C$600 million.
The assets being divested are projected to contribute 13,500 barrels of oil equivalent per day (boe/d) over the next year, predominantly in oil and liquids. This divestment is part of Crescent Point's broader goal of streamlining its operations and focusing on core assets, as evidenced by the recent closure of other non-core asset sales.
During Q1, Crescent Point sold its Swan Hills and Turner Valley assets for C$140 million.
On the back of this news, the company has revised its 2024 average production guidance to a range of 191,000 to 199,000 boe/d, reflecting a reduction of 7,000 boe/d compared to its prior guidance range midpoint.
Crescent Point said proceeds from the non-core dispositions will be used to reduce its outstanding debt.
Since 2021, Crescent Point has been actively engaged in major acquisitions, particularly in the Montney and Kaybob Duvernay oil and gas regions of Northwest Alberta.
The financing for Saturn's acquisition includes a US$625 million committed debt financing from Goldman Sachs (NYSE:GS), alongside a C$150 million reserves-based loan arranged by National Bank of Canada. A C$100 million bought-deal equity financing further supports the transaction, with gross proceeds directed to fund the acquisition.
"The acquired assets are a perfect fit with Saturn’s existing Saskatchewan operations and offer meaningful synergies,” said Saturn CEO John Jeffrey on Monday (May 6). “The Acquisition is highly accretive for our shareholders and consistent with our strategy of acquiring quality assets where we can apply our strategic operating approach to enhance margins, grow Adjusted EBITDA, and increase Free Funds Flow."
Commenting on the deal, BMO analyst Jeremy McCrea emphasized the importance of identifying critical junctures in oil and gas investing, noting that when it comes to exploration and production companies this can involve new ventures or enhanced field economics, which can "ultimately result in a multiple expansion."
"As Crescent Point effectively completes its transformation with its asset sale for C$600-million (slightly more than our expectations given AROs/3rd quartile inventory), its improved balance sheet and ROC metrics for the years ahead may make CPG a ‘premium name’. In time, a premium multiple should reflect this," he said.
Shares of the company rose following the news, reaching C$12.18 early on Tuesday (May 7), before pulling back slightly.
Trans Mountain pipeline opens after a decade of delays
Canada's oil and gas industry has been in the spotlight since the start of the month, when the Trans Mountain pipeline expansion (TMX) went into commercial service after 12 years of delays.
The 1,150 kilometer pipeline, which is operated by the federal government's Trans Mountain Corporation, is linked to an existing pipeline that was constructed in 1953 and provides a connection between Alberta and BC. Collectively, the twin pipelines are anticipated to transport approximately 890,000 barrels of oil per day to the west coast.
Project delays stemmed from legal challenges due to inadequate Indigenous consultation and environmental impact assessments, and were exacerbated by natural disasters, such as flooding in BC in 2012 and COVID-19.
Ian Anderson, the now-retired CEO of Trans Mountain and the person who oversaw most of the project’s construction, said that what comes next will be crucial for the pipeline’s future. “The question will be how quickly do they want to sell it? And what kind of process do they want to run to sell it?” he told the National Post.
TMX cost over US$25 billion to build, and Canada's Liberal government was forced to buy it in 2018. As the country looks to sell the operation, experts have doubts about whether it will be able to recoup its costs.
As the government goes through its options, Ottawa plans to start collecting tolls on the barrels passing through TMX daily, estimated at C$11.46 per barrel, potentially totaling nearly C$4 billion annually.
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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.
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