Has Crescent Point Energy Corp. Made a Wise Move?

Low oil prices have finally led Crescent Point Energy (TSX:CPG)(NYSE:CPG) to a drastic decision.

| More on:
The Motley Fool

With the price of crude oil now at the $47.48 mark, people have been wondering how Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) would react to the situation. Would it cut its staggering 9.18% yielding dividend, lower production, or sacrifice its capital expense budget?

The answer has finally emerged, and it’s contrary to the projections and pleas from analysts. Many believed that Crescent Point would sacrifice a portion of its dividend to help the company make it through the next year of volatile prices.

Instead, Crescent Point has decided to lower its capital budget by 28% for 2015, but is still planning on spending $1.45 billion over the year. Crescent Point had hinted back in November that it might do this, and that was when the price of oil was in the $70 range, so the cuts shouldn’t be much of a surprise.

Crescent Point is far from the only oil company to trim its budgets for 2015, with many other companies already slashing jobs, production, and future projects in order to maintain investor confidence.

What’s left for 2015

Despite the cuts, Crescent Point’s production in the year is expected to rise by an average of 9%, which would be 152,500 boe/day. Approximately 88% of the capital budget (or $1.27 billion) has been set aside for the drilling and completion of 616 new net wells. There is also an additional $180 million worth of funds set aside for infrastructure investments, seismic activities, and currently undeveloped lands throughout the Bakken and Shaunavon regions of Saskatchewan.

Biding its time for cheap mergers?

Not long ago Crescent Point CEO Scott Saxberg revealed that, “We look at this time period as a great opportunity to look for consolidation opportunities to further grow the company and take advantage of guys who have weaker balance sheets”. Crescent Point has a long history of aggressive acquisitions and with oil prices showing little signs of movement, 2015 could be a buyers’ market similar to the consolidations we saw after 2008.

The cuts to oil prices will also bring some reductions to service costs for Crescent Point as well, as management expects an initial 10% reduction in service costs. The company is hoping to see the same savings it saw back in 2008 to 2009 when its drilling and completion costs in the Bakken region dropped by 30%.

Do the investors win?

Many investors feared that they would shoulder the brunt of the 2015 cuts, feeling that the dividend was at risk of being sacrificed over the long term. Instead, Crescent Point has left its divided intact as a way to lure in energy investors who are seeing little to no good news throughout the sector. In addition, the fact most of Crescent Point’s oil comes from Saskatchewan shale instead of Albertan oil sands makes it an even more alluring alternative.

Price targets have been falling across the sector and this has to be looked at with the long-term results in mind. It could take one to two years for the price of oil to recover, so investors should look at this as a cheap time to consider a dividend-rich investment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Cameron Conway has no position in any stocks mentioned.

More on Energy Stocks

tsx today
Energy Stocks

TSX Today: Stocks to Watch on Monday, December 5

Canadian stocks may remain volatile ahead of the Bank of Canada’s upcoming interest rate decision due on Wednesday.

Read more »

Energy Stocks

Here’s My Top Stock to Buy Now, and it’s Not Even a Question

Tourmaline is a quality energy stock trading on the TSX. Here's why I remain bullish on TOU stock right now.

Read more »

oil and natural gas
Energy Stocks

2 TSX Energy Stocks That Could Break Through the Roof in December 2022

Did you miss the energy rally? Here are two TSX energy stocks that still offer handsome growth potential.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Nearing Retirement? The 2 Best Energy Dividend Stocks to Buy Now

Exxon Mobil Corp (NYSE: XOM) should be on your list if you're close to retirement.

Read more »

oil tank at night
Energy Stocks

The Best Oil Dividend Stock for a Decade of Passive Income

Enbridge Inc (TSX:ENB) has a high dividend it could keep paying for many years to come.

Read more »

The sun sets behind a high voltage telecom tower.
Energy Stocks

Fortis Stock Is a Buy Regardless of Where the Market Goes

Looking for a stable stock for your portfolio regardless of market circumstances? Here is why Fortis stock is the perfect…

Read more »

Increasing yield
Energy Stocks

1 Oversold Dividend Stock (With a 9.9% Yield) to Buy in December 2022

This dividend stock fell into oversold territory and may soon come out of it, offering a short time to get…

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

3 Renewable Energy Stocks That Are Too Cheap to Ignore

Renewable energy stocks are going to have a crazy decade. Right now, they trade at cheap prices that are far…

Read more »