Crescent Point Bolsters Alberta Montney Position With $2.55B Hammerhead Acquisition

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Crescent Point Energy has entered into an agreement to acquire fellow Canadian oil producer Hammerhead Resources in an all-stock deal valued at approximately $2.55 billion. The deal will expand Crescent Point’s presence in the Alberta Montney, adding over 100,000 contiguous net acres directly adjacent to its existing land position.

Under the terms, Hammerhead shareholders will receive 0.46 share of Crescent Point common stock and $21.00 cash for each Hammerhead share. That values Hammerhead at around $45,500 per flowing barrel of production.

Strategic Fit Strengthens Key Focus Areas

The acquisition solidifies Crescent Point’s dominant position in two of Canada’s premier unconventional oil plays. It becomes the largest landholder in both the Alberta Montney and Kaybob Duvernay resource plays.

Crescent Point gains over 800 net high-value drilling locations in the Montney through the deal. This boosts its total premium inventory depth to over 20 years, creating a strong long-term growth profile.

The acquired Montney lands also carry attractive royalty rates and have promising geological characteristics analogous to Crescent Point’s existing acreage. Horizontal drilling and completions technologies have unlocked the vast resource potential of the Montney in recent years.

Significant infrastructure owned by Hammerhead, including oil batteries, water disposal, and gas gathering lines, will also transfer over and support growth plans.

Immediate Impact on Cash Flow and Dividend

According to Crescent Point’s estimates, the deal will increase excess cash flow per share by over 15% on average from 2023-2027. This comes atop the company’s existing 5-10% organic growth outlook.

The increased cash generation provides support for a 15% dividend hike to $0.46 annually upon closing the acquisition. Crescent Point’s balance sheet remains a priority, with net debt expected to decline to 1.1x adjusted funds flow by year-end 2024.

Hammerhead’s current production of 56,000 boe/d (50% oil) is expected to increase to over 80,000 boe/d by 2024. With Hammerhead’s low-decline asset base, Crescent Point sees minimal stabilization capital required to sustain output.

Consolidation Creates Scale

Pro-forma the acquisition, Crescent Point will become Canada’s 7th largest energy producer pumping over 200,000 boe/d. The increased scale provides improved access to capital and potential cost efficiencies.

The company also gains key personnel from Hammerhead to further enhance technical and operational expertise across asset teams.

CEO Craig Bryksa said the deal transforms Crescent Point into a Montney and Duvernay focused producer, complemented by its Saskatchewan assets. The consolidation “is an integral part of our overall portfolio transformation,” Bryksa noted.

Crescent Point says its near-term priorities now center on integrating Hammerhead efficiently, executing planned programs, strengthening its balance sheet, and returning increasing capital to shareholders.

For Hammerhead, the transaction provides liquidity after joining the private equity backed company just two years ago. It also positions shareholders to participate in Crescent Point’s significant free cash flow growth in the coming years.

Subject to shareholder, court, and regulatory approvals, the acquisition is expected to close in Q4 2022. The deal will cement Crescent Point’s standing as a dominant Montney producer and provides visible growth underpinned by its expanded low-risk drilling inventory.

Take a moment to take a look at Noble Capital Markets’ Senior Research Analyst Michael Heim’s coverage list.

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