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.