Crescent Point Energy increasing use of hedging amid volatile oil markets

The corporate logo of Crescent Point Energy Corp. is shown in this handout image.

Crescent Point Energy Corp. is increasing its use of hedging to protect itself against commodity price swings.

Like other Canadian energy producers, the Calgary-based oil and gas company - which has drilling operations in Alberta, Saskatchewan and North Dakota - has been directly affected by the volatility in global energy markets over the last 12 months.

On Friday, the company reported a first-quarter profit of $216.7 million or 39 cents per diluted share for the quarter ended March 31, down from $1.18 billion or $2.03 per diluted share in the same quarter last year.

The decline in earnings coincided with weakening crude oil prices due to global economic uncertainty and the effect of rising interest rates. Crescent Point's average selling price for crude oil in the first quarter decreased 17 per cent from the same period in 2022, primarily due to a 14 per cent decrease to the benchmark West Texas Intermediate crude price, the company said.

Natural gas prices also weakened in the first quarter of 2023 compared to the same period in 2022. Crescent Point said its average selling price for natural gas for the three months ended March 31, 2023 was 23 per cent lower than the same period in 2022.

Energy prices have continued to be volatile in the second quarter. In the last month alone, WTI has lost 15 per cent of its value and now hovers around the US$70 range.

While Crescent Point continues to generate healthy profits at current prices - the company still expects to generate excess cash flow in 2023 of approximately $1.1 billion as long as WTI averages around $75 per barrel for the year - it's also increasing its use of commodity hedges to provide financial protection against the risk of further price declines.

Chief financial officer Ken Lamont said 30 per cent of the company's oil and liquids production is currently hedged in the second and third quarter of this year and approximately 10 per cent in the fourth quarter.

Although natural gas only represents 25 per cent of Crescent Point's overall production, the company has also hedged over 15 per cent of its gas volumes in 2023.

“We plan to layer in additional protection in the context of market conditions with a goal of hedging up to 30 per cent of our overall near-term production,” Lamont said.

Crescent Point's oil and gas sales in the quarter totalled $913.6 million, down from $1.09 billion in the first three months of 2022.

On an adjusted basis, Crescent Point says its earnings from operations totalled 40 cents per share, down from 41 cents per share a year ago.

Average daily production in the quarter was 139,280 barrels of oil equivalent per day, up from 132,788 in the same quarter last year.

The company's average selling price in the quarter was $72.88 per barrel of oil equivalent, down from $91.43 a year earlier.

Earlier this week, Crescent Point successfully closed its previously announced deal to buy Spartan Delta Corp.'s Montney oilfield assets in Alberta for $1.7 billion.

The deal means that Crescent Point will significantly grow its presence in what is one of North America's largest unconventional petroleum plays, acquiring 600 drilling locations the region and adding 38,000 barrels of oil equivalent per day to the company's production capacity.

Crescent Point has said the new Montney assets - which are adjacent to the Kaybob Duvernay assets it acquired last year - will increase the company's excess cash flow by 20 per cent within the first year.

This report by The Canadian Press was first published May 12, 2023.