Why is Crescent Point Energy (CPG) tumbling so low in September?

FIRST A COMMENT ON YOUR PREMIUM PLATFORM: I have never joined any investing platform before now. You guys really do great work. You won me over (not easy to do!) by posting FREE videos with great advice and easy-to-follow analysis and taking a subtle approach to showing your value. Unlike, Motley Fool, for example, who sends me about 30 emails a day telling me (and everyone else) how great they are and how stupid I am that I did not to join their platform. But, they have never given a scrap of FREE advice, so how can anyone tell if they have value. That’s where you two guys were very clever in actually DEMONSTRATING and SHARING your investing knowledge. I am new to the platform. I really like the way you guys run your platform. Keep up the great work!
BACKGROUND TO MY QUESTION: I have positions in oil and gas including CPG (Crescent Point Energy). There has of course been a slump in oil but during September CPG has gone down at a much faster rate than it has before. For example, CPG has (for a long time) been on par with WCP (Whitecap Resources -another of my holdings-). During September, WCP has held its ground but CPG has tumbled. No company news for either company.

QUESTION: Why is CPG tumbling so low? CPG also does well on your energy screener. So what’s the rationale for its stock price tumbling so low.

Marked as spam

Asked on October 2, 2020 12:43 pm

3 views

▲

▼

✔

Private answer

Hi there,

First - thanks for the kind words. We do our best to balance what we offer to free members, versus the more in depth value we can provide subscribers. We really don't believe in upselling to new products - if we have a new idea, we just add it to the platform like we recently did with our IPO Centre. Once again - thanks and glad we have won you over!

Now in relation to CPG - obviously the entire industry is just in the doldrums. Bad news after bad news, there seems to be no end in sight. In terms of why CPG has cratered more than most? I took the liberty of graphing both CPG and WCP against each other. Your assessment that they track either other holds weight (according to the past year's chart). However, CPG did de-couple from WCP in September. Why? Likely because CPG released Guidance and Outlook on September 1st . It is at this point, that CPG's stock tanked as compared to WCP.

After looking through their guidance, the market may be reacting to the fact that 2021 production is expected to average ~110,000 boe/d which is inline with the second half of 2020. However, it represents a dip of 8.3% over full-year 2020 average production of ~120,000 boe/d.

Overall however, the messaging was clear - a focus on generating free cash flow and reducing debt. In 2020, it expects to reduce debt by $600M. From what i can tell, since the company's guidance analysts have been neutral and estimates have been table. One of the issues with CPG is it has a very choppy earnings history - it is something the company had struggled with for years. It looked like it was in the process of righting the ship, then COVID hit and messed everything yup. It has now missed estimates in four straight quarters.

The other issue facing CPG is that the company is benefiting from big hedges in 2020 that accounts for about 50% of production (70% of H2 production is hedged) at prices around $65 per barrel. In 2021, those hedges drop materially and will only account for ~10% of production in Q1. Given this, CPG will need higher prices in 2021 if wants to continue to reduce its debt load.

Bottom line, the entire industry needs higher prices (not just CPG). The longer these prices continue to hover in the 30s, the more stress these companies will be under.

Mat

Marked as spam

Posted by Mathieu Litalien

Answered on October 2, 2020 1:32 pm

« Back to Previous Page