Last week, Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) announced its 2015 capital spending plan, which the company is reducing by 28% over the prior year. However, unlike some of its rivals itâs not reducing its dividend payments to investors. The reason the company is keeping its 9.64% dividend in place is because this isnât the first time the company has experienced the pain of falling oil prices. It managed through those tough times, which gives it the confidence it can do the same this time as well.
Taking a stroll down memory lane
One of the assumptions Crescent Point Energy is making in its 2015 spending plan is that its service costs will drop by 10%. This will enable the company to drill more wells with less money, which will push its returns higher in todayâs lower oil price environment.
That said, the company sees a much deeper cut in costs on the way. CEO Scott Saxberg noted this in the companyâs press release when he reminded investors of the recent past. Saxberg said, “When prices fell dramatically in 2008 to 2009, we were able to realize a 30% reduction in our Bakken drilling and completions costs.” With this history on its side the company is now working hard with its service providers to see rates come down even further, in hopes of again seeing a 30% cost reduction.
The upside to better than projected costs should give Crescent Point Energy a bit more breathing room on the dividend than current expectations. On top of that, the company is working on some newer drilling and completion technologies that could add production and reserves in a much more cost-efficient manner. Because of this, the company believes that it is going to manage through the downturn just fine. In fact, it sees its best days ahead of it.
Been there, done that and now itâs time to buy something
Crescent Point Energy sees the current downturn in oil prices as being no different than previous cyclical downturns in the price of oil. As Saxberg said, “oil prices have always been cyclical. We’ve been through downturns before and have not only protected our dividend and balance sheet during those times, but have come out of them even stronger than before. We expect this cycle to be no different.”
Crescent Point is planning to take advantage of the downturn to further strengthen its overall position. One way it will likely do this is by acquiring additional oil and gas properties, which have seen valuations come down from the recent peak. The company, which is the most acquisitive energy company in Canada, is likely going to be an aggressive dealmaker as it currently has a very strong balance sheet, which really gives it the freedom to go on the offensive to bolster its position by taking advantage of the current downturn.
Investor takeaway
Only time will tell if the current downturn is indeed similar to past cycles. However, Crescent Point Energy is really banking on the past. It is keeping its dividend right where it is as it prepares to take advantage of the downturn to bolster its overall position in the industry. Itâs a confident position that could yield strong long-term growth as long as history does repeat itself as it has so many times before.
