Crescent Point Energy (TSX:CPG)(NYSE:CPG) is up more than 15% in the past week and contrarian investors are wondering if the troubled oil and gas producer is finally ready to make a comeback.
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Asset sale
The stock received a big boost after Crescent Point announced plans to sell its Uinta assets and some properties in Saskatchewan for more than $900 million. The company says it intends to use the proceeds to reduce debt.
This should be a relief for shareholders, as the debt load has been a large negative for the stock. Crescent Point finished 2018 with net debt of about $4.4 billion, which is a lot for company with a current market capitalization of $2.7 billion.
The new management team that took over the leadership of the company last year has worked hard to find buyers for non-core assets in a challenging environment. The latest deal, combined with previously announced sales, brings the monetization of assets to about $1.3 billion since the former founder and CEO left the business.
Net debt at the end of 2019 is now expected to be around $2.75 billion. The company intends to allocate $100 million to repurchase shares.
Despite the large value of the Uinta asset sale, roughly $700 million of the $912 million total, Crescent Point says anticipated average annual production will drop to just 160,000-164,000 barrels of oil equivalent per day (boe/d) from the previous guidance of 168,000 – 172,000.
The sale is expected to close in October.
In the press release, Crescent Point said that it intends to pursue ongoing asset dispositions, including the remaining conventional oil assets in southeast Saskatchewan and its gas infrastructure assets in the province.
Capital outlays are expected to remain at $1.2-1.3 billion for the year.
Oil outlook
The news of the asset sales arrives just as the price of oil might be finding a near-term bottom. The price of West Texas Intermediate oil at the time of writing is about US$56 per barrel, up from US$51 in early August, but still well off the US$76 we saw last October.
Oil bulls say the extension of ongoing supply cuts by OPEC and Russia should eventually push prices higher. Any major geopolitical shock in the Middle East could result in a price spike.
Bears are concerned that the trade war between the United States and China could push the global economy into a recession. If that occurs, or if traders start to believe that it’s inevitable, oil prices could tumble, as we saw late last year when WTI fell from US$76 to US$43 in late December.
Volatility should be expected, but a recovery in oil back toward US$70 wouldn’t be a surprise in 2020, giving energy stocks a nice lift. Saudi Arabia has restarted plans to list part of Aramco, the state-owned oil giant, on international markets — which will want investors to be in a positive mood when the share sale occurs.
Should you buy Crescent Point?
Investors shouldn’t hope for a return to the glory days of $45 per share stock price and a monthly dividend of $0.23, but a jump to $10 per share from the current price close to $5 is possible, especially with the balance sheet issues essentially resolved.
If you are bullish on oil over the next 12-18 months, Crescent Point might be an interesting contrarian pick today.
