Crescent Point Most Valuable on Light Crude: Corporate Ca

Crescent Point Energy Corp. (CPG) is increasing assets of easily refined crude, helping to make the company Canada’s most valuable large stock. Crescent’s hedging program is poised to keep it among the top ranks even as oil prices decline.

Investors are paying 38.4 times earnings over the past 12 months for Crescent Point shares, the most among Canada’s largest 35 companies by market capitalization on the Toronto Stock Exchange. That compares with 8.2 for Suncor Energy Inc. (SU), Canada’s largest oil and gas producer, and 11.6 for Royal Bank of Canada, the country’s biggest company, according to data compiled by Bloomberg.

Crescent Point, Canada’s sixth-biggest oil company, produces light oil in western Canada, including the Bakken, a reserve straddling the U.S.-Canada border that the U.S. Geological Survey in 2008 estimated to contain about 4 billion barrels of recoverable crude. The Calgary-based company has acquired many of its smaller competitors in Saskatchewan and Alberta, protects most of its production through hedging and has the potential to boost production significantly, said Gordon Currie, an analyst at Salman Partners in Calgary.

“Crescent Point is in a unique spot,” Currie, who recommends investors buy the stock, said in a telephone interview. “They’re very heavily weighted in light oil, they hedge regularly and they’re active acquirers.”

Shares Outperformed

The shares have outperformed the 20 percent decline of the S&P/TSX Energy Index of 64 Canadian oil and gas producers over the past 12 months. The stock fell 2.5 percent to close at C$36.27 in Toronto and has dropped 19 percent this year.

Crescent Point expects to produce 80,450 barrels of oil and natural gas liquids per day in 2012 and has identified drilling locations that could add 575,000 barrels of daily production, according to a May 10 statement. The company plans to spend C$1.25 billion ($1.22 billion) this year drilling wells and buying competitors.

As of April 30, Crescent Point had hedged 61 percent of its oil production for 2012 and 52 percent for 2013, the company said on May 10. The average quarterly hedge prices range from C$94 per barrel to C$99 per barrel.

“With oil at $78, hedging is really paying off for them,” Currie said. “It protects cash flow and allows them to conduct their drilling program.”

Second-quarter results should reflect good results from hedging, said Trent Stangl, a company spokesman.

‘Massive Earnings’

“We’ll show massive earnings in the second quarter because of hedging” as well as “really strong cash flow,” Stangl said in a telephone interview. Still, he said there won’t be much change to their capital-spending guidance in the second quarter because of the decline in oil prices.

Oil for August delivery fell 0.73 percent to settle at $79.21 a barrel on the New York Mercantile Exchange. Futures are down 20 percent this year.

Crescent Point completed its purchase last week of Cutpick Energy Inc. for an agreed price of C$425 million to add the equivalent of 5,600 barrels of daily oil production. Cutpick’s output is almost two-thirds light oil primarily in Alberta, Crescent Point said in the June 20 statement.

The company has announced five purchases this year, including Cutpick, Reliable Energy Ltd. and Wild Stream Exploration Inc., according to data compiled by Bloomberg.

High Netbacks

“They’re very focused and aggressively bought up all the competitors,” said Sam La Bell, an analyst at Veritas Investment Research Co. in Toronto who rates the shares a buy and doesn’t own any. “Their concentrated position is not open to others.”

Crescent Point’s netbacks, the revenue from a barrel of oil minus the associated costs of producing and transporting it to market, are expected to be the highest among competitors for 2013 at about $50 per barrel, said Don Rawson, an analyst at AltaCorp Capital Inc. Netbacks increased 11 percent in the first quarter to $51.88, the company said on May 10.

The biggest risk for the stock is the price of oil, said Rawson, who cut his rating on the stock to sector perform from outperform and lowered his price target to C$43 from C$51.

“When the market sold off as badly as it did recently, that was the rationale for putting it back to market perform,” he said. “It’s still a quality name.”

The stock will “absolutely” remain more valuable in the coming months compared with its peers, Rawson said.

Pay Premium

Crescent Point’s gross profit margin at 25 percent for the most recent quarter is about half that of Barrick Gold Corp. (ABX), the world’s largest gold producer, at 51 percent and Suncor’s at 47 percent. Investors are willing to pay a premium because Crescent Point is hedged against oil-price declines and has little debt, said Rawson.

Crescent Point has about C$2.32 billion of debt, compared with a market value of almost C$12 billion, according to data compiled by Bloomberg.

Like most competitors operating in the Bakken as well as farther north in the oil-sands region, Crescent Point faces the risk of not being able to transport its crude production from Alberta and Saskatchewan to markets in the U.S., Currie said. With new pipelines like TransCanada Corp. (TRP)’s proposed Keystone XL and Enbridge Inc. (ENB)’s Seaway reversal and expansion, that risk will diminish, he said.

To contact the reporter on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net