Crescent Point Energy Corp. (CPG): Growth and Yield in Oil

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1 Portfolio Advisory Group Crescent Point Energy Corp. (CPG): Growth and Yield in Oil SUMMARY As a recent addition to our Focus List, the below is written to provide investors with an update on Crescent Point Energy (CPG). Crescent Point is an oil company following a growth and dividend model. It offers investors a high quality reserve base, significant long-term growth potential, a conservatively managed balance sheet and a strong management team. A key component of the Crescent Point story is the company s ability to prove up additional reserves from its massive resource base. The success of its water flood efforts may significantly increase estimated recoveries and drive future reserve bookings. The company is expected to report fourth quarter 2010 results on March 16th and may offer investors additional insight on progress with its water flood pilots at that time. COMPANY DESCRIPTION Crescent Point is an exploration and development company focused on long-life assets that are ~85% weighted to oil. CPG is one of the largest producers in the Southeast Saskatchewan Viewfield Bakken play and holds a dominant position in the Lower Shaunovan medium oil play in Southwest Saskatchewan. Management has chosen to pursue a growth and income strategy, targeting 5% organic growth over time while offering investors an attractive dividend that currently yields 6.2%. Management has taken a conservative approach to capital spending and uses hedging to provide greater certainty and stability to its cash flows. Crescent Point was formed in 2001 and went public later that year. In 2003, CPG converted into an income trust and in 2009 it converted back into a corporation. The company has grown quickly to its current enterprise value of $13 billion through a series of acquisitions, the most sizeable of which include: Shelter Bay (2010), Penn West assets (2010), Triaxon (2009), Wave (2009), Wild River/Gibraltar (2009), Talisman assets (2009), Villanova (2009), Innova (2007) and Mission (2007). Source: Company website Map of Operations Viewfield Bakken The Veiwfield Bakken play in Southeast Saskatchewan has seen large production gains over the last several years following the application of horizontal drilling and multi-stage fracturing. While the Bakken has been known for 60 years and there have been sweet spots in the past that were producible, with new technology, large-scale development has recently become possible. Crescent Point has bulked up its position in the Bakken with its acquisitions of Mission Oil and Gas, Innova, Villanova, Pilot, Landex and Shelter Bay. Professional Wealth Management Since 1901

2 With 4.6 billion barrels of original oil in place (OOIP), the Viewfield Bakken play continues to be a major source of long-term growth potential. CPG has 930 net sections of land in the area and estimates its drilling inventory to include approximately 3,800 locations (at 8 wells per section). Possible upside reserves potential in the Bakken is estimated to be 274 million barrels. Crescent Point is planning to spend 65% of its 2011 capital expenditure budget to drill 200 net wells in the Viewfield Bakken. Shaunovan The Shaunovan play in Southwest Saskatchewan has been Crescent Point s other major area of consolidation, where it acquired Wild River Resources, Gibraltar Exploration, Wave Energy and assets from Penn West over the past few years. The play is similar to the Viewfield Bakken and CPG has been using its technological advances in the Bakken to develop the Lower Shaunovan. With 4.3 billion barrels of OOIP, the Lower Shaunovan also has significant long-term growth potential. CPG has 570 net sections of land in the area and estimates its drilling inventory to include approximately 1,500 locations (at 8 wells per section). Possible upside reserves potential in the Lower Shaunovan is estimated to be 260 million barrels. The Upper Shaunovan is smaller at 350 million barrels of OOIP with a drilling inventory of more than 200 well locations (at 8 wells per section). Crescent Point is planning to spend 14% of its 2011 capital expenditure budget to drill 44 wells in the Shaunovan. Southern Alberta Bakken While production is limited in the Southern Alberta Bakken (~900 boe/d), CPG has a large land base including one million net acres. The area is in an exploratory stage, with CPG s 2nd and 3rd wells only started in late The company plans to drill 14 net development and exploration wells here in Drilling results from the Alberta Bakken are not expected until the second half of When released, these results could be a significant catalyst for the stock. INVESTMENT HIGHLIGHTS Growth Profile CPG has delivered impressive growth over the years. Going forward, management estimates that CPG has some 6,000 drilling locations, which offer more than 19 years of production additions based on the 2011 pace of development. Reserves Growth (Proved + Probable, mmboe) Production Growth (boe/d) Source: Crescent Point January 2011 Investor Presentation Notes: 1. Independent third party reserves for Independent third party reserves for 2009 plus Penn West SW Saskatchewan asset acquisition and Shelter Bay Energy acquisition

3 Distribution / Dividend (C$/share) $3.00 $2.50 $0 $0 $1.00 $0.50 $- Distribution / Dividend History (C$/share) E Source: Capital IQ, RBC CM Large Resource Base CPG has 10.6 billion barrels of original oil in place and has proved and probable (P+P) reserves of million barrels of oil equivalent as of year-end 2009 (adjusted for the acquisition of assets from Penn West and the acquisition of Shelter Bay Energy). This represents a 7.5% recovery factor, accounting for oil already produced over the years. Based on analog pools, Crescent Point sees the potential for a recovery factor of 17.9%, and estimates that possible reserves, incremental to current P+P estimates, are approximately 649 million barrels. CPG has a current reserve life index of 14.8 years (P+P) based on RBC CM research estimates. Water Flood Potential Crescent Point has been experimenting with water flood techniques for a number of years. Water flooding involves injecting water into the reservoir to stimulate production from adjacent wells and reduce the rate of natural production declines. CPG s first water flood pilot began a few years ago, its second in late 2009, and the company is now working on 6 pilots. An update on Crescent Point s 3rd and 4th pilots is expected in the near future, possibly with year-end results expected on March 16th. Simulation studies suggest that implementing a water flood in the Bakken could increase recovery factors to more than 30% from the current 7.5%. Critics of the water flood technique suggest that the rock formation in the Bakken is too tight for it to be effective and, as a result, CPG s pilot work is being closely watched. Successful water flood activities could allow Crescent Point to materially increase its future reserve bookings and hence the coming update may provide a catalyst for the stock. Attractive Dividend Shares of CPG offer an attractive dividend at an annualized rate of $2.76 per share, implying a current yield of 6.2%. The company has never cut its Hedging Profile Source: Crescent Point January 2011 Investor Presentation

4 dividend. CPG s effective payout ratio is forecast to be 133% in 2011 and 122% in 2012 per RBC CM forecasts, which is high as compared to the peer group. This includes capital expenditures that amount to 68% of cash flow in 2011 and 64% in With approximately half of the company s dividend paid via the dividend re-investment program, the cash dividend is well covered based on RBC CM forecasts. Balance Sheet and Hedging Crescent Point maintains a conservative approach to its balance with its debt to cash flow at 0.9x, based on RBC CM estimates for The company also has a multi-year risk management program. The use of this hedging program offers cash flow protection and greater stability to the capital expenditure program and dividends. Valuation While relatively highly valued on cash flow metrics, Crescent Point s valuation is in the middle of the group on a P/NAV basis when compared to similarly sized producers in the Western Canadian Sedimentary Basin. P/NAV EV/DACF and P/CF (2011E) EV/DACF P/CF P/NAV EV/DACF and P/CF Baytex PetroBakken Penn West ARC Crescent Point Bonavista Daylight Pengrowth Enerplus Crescent Point Baytex ARC Bonavista Enerplus Penn West Daylight Pengrowth PetroBakken Source: RBC CM (as of March 13th, 2011) Source: RBC CM (as of March 13th, 2011)

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