Morningstar | We Are Lowering Our Crescent Point Fair Value Estimate; Stock Remains in 3-Star Territory
After taking a fresh look at no-moat Crescent Point Energy’s fourth-quarter results, we are lowering our fair value estimate to $3.50 (CAD 4.50) from our previous estimate of $4.00 (CAD 5.50) to reflect our lower forecasts for the company’s price realizations. Additionally, we are maintaining our no-moat rating.Even with our lower fair value estimate, the stock is still trading in 3-star territory. Due to its extreme uncertainty, we suggest that investors remain on the sideline. Although we consider Crescent Point's assets to contain several low-cost resource plays, high finding and developing costs on the firm's emerging assets dilute the company's cost structure. Consequently, full-cycle breakeven prices exceed $60 per barrel of West Texas Intermediate, which compares unfavorably to our midcycle forecast of $55/bbl WTI.
As a reminder, Crescent Point’s fourth-quarter pricing realizations surprised to the downside. Crude price realizations averaged CAD 54.38 per barrel of oil equivalent, which was 45% less than third-quarter pricing despite only a 15% decline in West Texas Intermediate prices. Crescent Point’s operations are in a unique position. The majority of the production is located in the U.S. or not subject to apportionment points on Canadian crude pipelines, vastly lowering exposure to wide heavy and light oil differentials. However, the logjams that have plagued Canada’s takeaway capacity weighed on the company’s results.
Crescent Point reported fourth-quarter production volumes of 178.3 thousand boe/d, a slight year-over-year decline but ahead of our expectations. The better-than-expected production was driven by Crescent Point’s focus on its Veiwfield assets, which carry lower decline rates than the company’s corporate average.
Crescent Point Energy is an oil and gas exploration, development and production company with assets focused in properties consist of crude oil and natural gas reserves. Co. is engaged in acquiring, developing and holding interests in petroleum and natural gas properties and assets related thereto through a general partnership and wholly owned subsidiaries. As of Dec 31 2016, net proved reserves for light and medium crude oil were 141,850 million barrels, heavy crude oil were 19,993 million barrels, tight oil were 269,461 million barrels, natural gas liquids were 50,767 million cubic feet, shale gas were 221,238 million cubic feet and conventional natural gas were 115,041 million cubic feet.
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