Crescent Point Energy Corp. announced on March 28 that it has entered into an agreement to acquire Spartan Delta Corp.’s oil and liquids-rich Montney assets in Alberta, Canada, for CA$1.7 billion (US$1.28 billion) in cash.
The acquisition includes average production of 38,000 barrels of oil equivalent per day (boe/d), 55% liquids, and adds total drilling inventory of 600 net Montney locations, which Crescent Point said would provide more than 20 years of inventory to sustain current production levels.
Spartan’s acquired assets include approximately 235,000 net acres of contiguous land with Montney rights in Alberta within the Gold Creek and Karr area, as well as infrastructure and well licenses to support future development plans.
The assets are adjacent to Crescent Point's Kaybob Duvernay assets — an area where the company continued to expand since entering the play in February 2021 in following the acquisition of Shell’s position in the play.
In December, Crescent Point announced a purchase and sale in the play to bolt-on production as well as midstream infrastructure for CA$375 (US$274 million) cash.
In the March 28 announcement, Crescent Point said it would target “additional non-core asset dispositions over time to further optimize portfolio.”
The company said its leverage ratio, pro forma for the deal, would be 1.3x adjusted funds flow at closing and 1.0x at year-end 2023.
Spartan’s type wells are expected to pay out in approximately 10 months from the initial on-stream date, based on wells booked by the independent engineers and assuming current commodity prices, Crescent Point said.
The company’s transaction metrics assume WTI prices ranging between US$70/barrel (bbl) to US$75/bbl and $3.50 per million cubic feet of natural gas. Under those conditions, Spartan’s production would produce:
- 3.2x to 3.4x annual net operating income;
- $44,740 per flowing boe; and
- $8.23 per boe of 2P reserves of 206.7 MMboe.
The wells are also economic at low commodity prices with breakevens below US$40/bbl WTI, the company said. The wells returns and economics will rank in the top quartile of Crescent Point’s portfolio. Along with its Kaybob Duvernay asset, the company said the acquisition provides additional flexibility within the company’s capital allocation framework.
Upon closing, Crescent Point's pro-forma decline rate is expected to remain below 30% and total inventory of premium locations to increase to 15 years, based on the long-term development plans for its assets.
"Over the past five years, we have fundamentally rebuilt and strengthened Crescent Point," said Craig Bryksa, president and CEO of Crescent Point. "As a result of our efforts, and after closing this transaction, our asset base will include significant inventory depth in both the Kaybob Duvernay and the Montney, while also maintaining significant low-decline assets in Saskatchewan that provide additional excess cash flow.
“The Montney acquisition is immediately accretive to our per share metrics, enhances our return of capital to shareholders and is aligned with our long-term strategy to focus on high-quality, scalable resource plays that meet our defined asset criteria.”
The transaction is anticipated to close during second-quarter 2023, subject to regulatory approvals and customary closing conditions.
RBC Capital Markets is acting as financial adviser to Crescent Point on the transaction. BMO Capital Markets and Scotiabank are acting as strategic advisers to Crescent Point.
The Bank of Nova Scotia and Royal Bank of Canada are acting as co-lead arrangers and joint bookrunners on the company's new revolving credit facility.
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