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Will Crescent Point Energy’s Newest Purchase Pay Off?

Even though Crescent Point Energy (TSX: CPG)(NYSE: CPG) is based in Alberta, the majority of its production is in Saskatchewan, primarily in the Bakken Shale reserve and the overlapping Torquay formation in the southeast part of the province.

If you’ve driven through southern Saskatchewan in the past few years you can see the influence of the Bakken discovery — drills and mining related signs are just as plentiful as trees.

Crescent Point has been busy during the past 12 months testing its land reserves, and in early April it released some very promising numbers. Over 220 sections in Torquay have been earmarked for drilling, with 400 low-risk drill spots already planned. This means that Crescent Point will be investing $200 million this year to bring 48 wells online, to add to its 36 already in service.

Production in the area has gone from 0-5,100 boe/day in the past 12 months. Crescent Point isn’t satisfied with its own land holdings in the area, and encouraged by its discoveries, it has purchased local energy producer CanEra Energy Corp.

The price to pump

In the deal Crescent Point will receive 260 net sections of land in the Torquay formation, included in the area are 60 sections of land in Crescent’s core Flat Lake area. The land is expected to be a long life reserve, currently generating 10,000 boe/day for CanEra.

In exchange, Crescent Point offered CanEra a $1.1 billion package, including 12.9 million shares, $192 million in cash, and assumption of $348 million of net debt. With this deal Crescent Point now controls 880 net sections of land in the Torquay formation, with 280 sections in the core Flat Lake area. This deal is projected to increase annual cash flow by 5% in 2014 and 6% in 2015. The daily production rates for Crescent Point are expected to increase by 5% to 133,000 boe/day with this new land.

Any time a company can acquire land in this area is significant, as the Torquay formation is a part of the now famed Bakken shale reserve, located in southern Saskatchewan, northwest North Dakota, and northeast Montana. Since the discovery it has been a race on both sides of the border to extract the reserves first and the fastest.

Crescent Point is a contender

With this deal in place, and the general speed at which Crescent Point is growing, some insiders are beginning to project that the company could be a legitimate competitor to Imperial Oil (TSX: IMO) and Huskey Energy (TSX: HSE) in the next five years.

Since the deal was announced, analysts have raised their price targets to $52.50 and attached a buy rating on the stock. The stock has been on the rise since the announcement, hitting a new 52 week high of $44.90 Friday afternoon before closing at $44.85.

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Fool contributor Cameron Conway does not own any shares in the companies mentioned.

 

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