Crescent Point Energy Trust Announces Third Quarter 2008 Results
CALGARY, Nov. 10 /CNW/ - Crescent Point Energy Trust ("Crescent Point" or
the "Trust") (TSX: CPG.UN), is pleased to announce its operating and financial
results for the third quarter and nine months ended September 30, 2008.FINANCIAL AND OPERATING HIGHLIGHTS
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Three months ended Nine months ended
($000s except September 30 September 30
trust units, per -----------------------------------------------------
trust unit and % %
per boe amounts) 2008 2007 Change 2008 2007 Change
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Financial
Funds flow from
operations(1)(8) 183,843 92,215 99 482,497 243,338 98
Per unit(1)(2)(8) 1.45 0.89 63 3.86 2.50 54
Net income
(loss)(3)(8) 497,815 18,410 2,604 102,691 58,181 77
Per unit(2)(3)(8) 3.92 0.18 2,078 0.83 0.60 38
Cash distributions 86,247 63,206 36 238,507 177,137 35
Per unit(2) 0.69 0.60 15 1.92 1.80 7
Payout
ratio (%)(1)(8) 47 69 (22) 49 73 (24)
Per
unit (%)(1)(2)(8) 48 67 (19) 50 72 (22)
Net debt(1)(4) 672,812 208,554 223 672,812 208,554 223
Capital
acquisitions
(net)(5) 8,908 20,777 (57) 141,556 660,029 (79)
Development
capital
expenditures 120,296 57,792 108 361,678 132,538 173
Weighted average
trust units
outstanding (mm)
Basic 125.0 102.7 22 123.6 96.5 28
Diluted 127.3 104.1 22 125.4 97.8 28
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Operating
Average daily
production
Crude oil
and NGLs (bbls/d) 32,611 23,846 37 31,805 22,915 39
Natural gas (mcf/d) 30,116 22,357 35 29,199 20,626 42
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Total (boe/d) 37,630 27,572 36 36,672 26,353 39
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Average selling
prices(6)
Crude oil and
NGLs ($/bbl) 114.53 69.86 64 107.02 63.97 67
Natural gas ($/mcf) 7.99 5.40 48 8.72 6.61 32
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Total ($/boe) 105.65 64.80 63 99.76 60.80 64
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Netback ($/boe)
Oil and gas sales 105.65 64.80 63 99.76 60.80 64
Royalties (20.67) (11.77) 76 (18.47) (11.07) 67
Operating
expenses (9.58) (9.01) 6 (8.93) (9.27) (4)
Transportation (1.70) (1.75) (3) (1.97) (1.68) 17
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Netback prior
to realized
derivatives 73.70 42.27 74 70.39 38.78 82
Realized gain
(loss) on
derivatives(7) (15.18) (1.17) (1,197) (12.94) 0.19 (6,911)
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Operating netback 58.52 41.10 42 57.45 38.97 47
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The Crescent Point financial and operating results do not reflect the
production or cash flows of Shelter Bay Energy Inc. ("Shelter Bay") other
than the production and cash flows associated with the Trust's interests
in the wells farmed out to Shelter Bay by the Trust. Crescent Point
accounts for its investment in Shelter Bay using the equity method of
accounting. Accordingly, the Trust records its share of Shelter Bay net
income or loss in the "equity and other income" caption on the
consolidated statements of operations, comprehensive income and deficit.
(1) Funds flow from operations, payout ratio and net debt as presented do
not have any standardized meaning prescribed by Canadian generally
accepted accounting principles and, therefore, may not be comparable
with the calculation of similar measures presented by other entities.
(2) The per unit amounts (with the exception of per unit distributions)
are the per unit - diluted amounts. The net income and funds flow per
unit - diluted amounts exclude the cash portion of unit-based
compensation.
(3) The net income of $497.8 million for the third quarter of 2008
includes unrealized derivative gains of $418.2 million.
(4) Net debt includes bank indebtedness, working capital and long term
investments, but excludes the risk management liabilities and assets.
(5) Capital acquisitions represent total consideration for the
transactions including bank debt and working capital assumed.
(6) The average selling prices reported are before realized derivatives
and transportation charges.
(7) The realized derivative loss for the nine month period ended
September 30, 2008, excludes a $34.5 million loss on the derivative
crystallization of various oil contracts completed in the second
quarter of 2008.
(8) Funds flow from operations and the net loss for the nine months ended
September 30, 2008 include the $34.5 million loss on the derivative
crystallization. Excluding the $34.5 million derivative
crystallization, funds flow from operations for the nine month period
ended September 30, 2008 would be $517.0 million or $4.14 per unit -
diluted. The net income for the nine month period ended September 30,
2008 would be $137.2 million or $1.11 per unit - diluted. The payout
ratio excluding the derivative crystallization would have been 46
percent and 46 per unit - diluted for the nine months ended September
30, 2008.
HIGHLIGHTS
In the third quarter of 2008, Crescent Point continued to execute its
integrated business strategy of acquiring, exploiting and developing high
quality, long life light and medium oil and natural gas properties.
- The Trust grew production by 3 percent over the second quarter of
2008, averaging a record 37,630 boe/d per day in the third quarter of
2008. This represents a 36 percent increase over the third quarter of
2007 and has prompted the Trust to raise its production guidance for
2008 to 36,750 boe/d from 36,250 boe/d.
- Crescent Point spent $120.3 million on development activities in the
third quarter, including $29.4 million on facilities, land and
seismic. The Trust spent $90.9 million on drilling activities,
including the drilling of 58 (45.2 net) wells with a 100 percent
success rate and the fracture stimulation of 52 (47.3 net) Bakken
horizontal wells. In total, the Trust added more than 4,200 boe/d of
initial interest production from third quarter development
activities.
- The Trust discovered two new light oil pools in the Frobisher zone in
the Viewfield area of southeast Saskatchewan. The pools were
initially identified by oil shows in the Frobisher zone while
drilling Bakken oil wells. The oil shows were supported by three
dimensional seismic and confirmed by the successful drilling of 2
horizontal oil wells in September and October. Three dimensional
seismic and numerous additional oil shows in the zones above the
Bakken suggest the potential for several additional new pool or pool
extension discoveries. Crescent Point expects to drill 2 more
Frobisher wells in the Viewfield area in the fourth quarter, with
upwards of 10 more planned for 2009.
- Crescent Point's funds flow from operations doubled to a record
$183.8 million ($1.45 per unit - diluted) in the third quarter of
2008, compared to $92.2 million ($0.89 per unit - diluted) in the
third quarter of 2007.
- The Trust increased its operating netback to $58.52 per boe in the
third quarter of 2008 from $41.10 in the third quarter of 2007. The
42 percent increase was due primarily to higher benchmark prices as
well as improved crude quality as a result of the Trust's growing
Bakken production, which realized a third quarter field netback of
$88.74 per boe.
- Crescent Point's distributions in the third quarter totaled $0.69 per
unit, a 15 percent increase from $0.60 per unit in the third quarter
of 2007. This represents a payout ratio of 48 percent on a per unit -
diluted basis, down from 67 percent in the third quarter of 2007. The
Trust increased its monthly distribution to $0.23 per unit in June of
2008 due to better than anticipated production results, increasing
Bakken production and better than anticipated commodity prices.
Crescent Point initiated a derivative crystallization and reset
program in the second quarter of 2008 to provide further
sustainability to the Trust's increased distribution level.
- During the third quarter of 2008, Shelter Bay Energy Inc. ("Shelter
Bay"), a private Bakken light oil growth company in which Crescent
Point currently has a 21 percent interest, drilled 16 Bakken
horizontal wells on lands farmed out by the Trust. Crescent Point's
interests in the wells equal a net total of 7.3 wells, which are not
included in the Crescent Point drilling results. Crescent Point's
share of production from all Shelter Bay farmin wells averaged over
700 boe/d for the quarter. Under the farmout agreement, Shelter Bay
is responsible for 100 percent of the capital costs associated with
these wells.
In total, Shelter Bay drilled 26 Bakken horizontal wells and 3 Lower
Shaunavon wells in the third quarter and increased its undeveloped
Saskatchewan land holdings since the second quarter to 229 net
sections, including lands acquired in the August and October 2008
Saskatchewan Crown land sales.
- On October 1, 2008, Shelter Bay closed a $300 million private
placement equity financing, of which Crescent Point contributed $78.7
million. Crescent Point's share was financed through the Trust's
existing credit facilities. With the closing of the private
placement, Shelter Bay is well positioned to execute on its strategy
of acquiring assets in core Crescent Point areas, including the
southeast Saskatchewan Bakken light oil resource play.
- In October of 2008, Crescent Point's bank line was increased by 15
percent to $1.15 billion to reflect significant growth in reserves
from the Trust's successful development activities. The Trust's
balance sheet remains strong with significant unutilized capacity on
its bank line and projected 2009 net debt to 12 month cash flow of
1.1 times.
- The Trust continued to execute its core strategy of managing
commodity price risk using a combination of fixed price swaps,
costless collars, and put option instruments. As at October 28, 2008,
the Trust had hedged 56 percent, 53 percent, 42 percent and 27
percent of production, net of royalty interest, for the balance of
2008, 2009, 2010 and 2011, respectively. Average hedge prices were
greater than Cdn$79.00 per boe with minimum floors ranging from Cdn
$75.00 to Cdn$111.00 per boe. The Trust also initiated its first
quarter 2012 hedge position, with 11 percent of production hedged in
the Cdn $100.00 per boe range.
OPERATIONS REVIEW
Forward-Looking StatementsThis report may contain forward-looking statements including expectations
of future production, cash flow and earnings. These statements are based on
current beliefs and expectations based on information available at the time
the assumption was made. By its nature, such forward-looking information is
subject to a number of risks, uncertainties and assumptions, which could cause
actual results or other expectations to differ materially from those
anticipated, including those material risks discussed in our annual
information form under "Risk Factors" and in our Management's Discussion and
Analysis for the year ended December 31, 2007, under "Business Risks and
Prospects"; the material assumptions are disclosed in the Results of
Operations section of this press release under the headings "Cash
Distributions", "Taxation of Cash Distributions", "Capital Expenditures",
"Asset Retirement Obligation", "Liquidity and Capital Resources", "Critical
Accounting Estimates", "New Accounting Pronouncements" and "Business Risks and
Prospects". These risks include, but are not limited to: the risks associated
with the oil and gas industry (e.g., operational risks in development,
exploration and production; delays or changes in plans with respect to
exploration or development projects or capital expenditures; the uncertainty
of reserve estimates; the uncertainty of estimates and projections relating to
production, costs and expenses, and health, safety and environmental risks),
commodity price and exchange rate fluctuations and uncertainties resulting
from potential delays or changes in plans with respect to exploration or
development projects or capital expenditures. Additional information on these
and other factors that could affect Crescent Point's operations or financial
results are included in Crescent Point's reports on file with Canadian
securities regulatory authorities. Readers are cautioned not to place undue
reliance on this forward-looking information, which is given as of the date it
is expressed herein or otherwise and Crescent Point undertakes no obligation
to update publicly or revise any forward-looking information, whether as a
result of new information, future events or otherwise.
Third Quarter Operations Summary
During the third quarter of 2008, Crescent Point continued to
aggressively execute management's business strategy of creating sustainable,
value added growth in reserves, production and cash flow through acquiring,
exploiting and developing high quality, long life light and medium oil and
natural gas properties.
Crescent Point achieved another record quarter for production and
exceeded guidance in the third quarter of 2008. Production averaged 37,630
boe/d, a 3 percent increase from the second quarter of 2008. The Trust
participated in the drilling of 56 (44.3 net) oil wells, 1 (0.2 net) natural
gas well and 1 (0.7 net) service well, achieving a 100 percent success rate,
and fracture stimulated 52 (47.3 net) Bakken horizontal wells. Combined, the
Trust's drilling and fracture stimulation activities added in excess of 4,200
boe/d of initial interest production.Drilling Results
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Three months ended
September 30, %
2008 Gas Oil D&A Service Standing Total Net Success
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Southeast
Saskatchewan - 49 - 1 - 50 40.9 100
Southwest
Saskatchewan - 4 - - - 4 1.4 100
South/Central
Alberta - 3 - - - 3 2.7 100
Northeast BC &
Peace River
Arch, Alberta 1 - - - - 1 0.2 100
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Total 1 56 - 1 - 58 45.2 100
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Nine months ended
September 30, %
2008 Gas Oil D&A Service Standing Total Net Success
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Southeast
Saskatchewan - 116 - 5 - 121 98.4 100
Southwest
Saskatchewan - 12 - - - 12 5.4 100
South/Central
Alberta - 3 - - - 3 2.7 100
Northeast BC &
Peace River
Arch, Alberta 1 4 - - - 5 4.2 100
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Total 1 135 - 5 - 141 110.7 100
-------------------------------------------------------------------------Southeast Saskatchewan
In the third quarter, Crescent Point participated in the drilling of 49
(40.2 net) oil wells and 1 (0.7 net) service well in southeast Saskatchewan,
achieving a 100 percent success rate. Of these, 38 (31.6 net) wells were
Bakken horizontal oil wells at Viewfield and the remainder were horizontal oil
wells principally at Manor. The Trust also fracture stimulated 52 (47.3 net)
Bakken horizontal oil wells.
Crescent Point added initial interest production in excess of 4,000 boe/d
in southeast Saskatchewan through its drilling and fracture stimulation
activities in the quarter.
During the quarter, Shelter Bay drilled 16 Bakken horizontal wells on
lands farmed out by the Trust. Crescent Point's share of production from all
Crescent Point farmout wells averaged approximately 700 boe/d for the quarter.
These wells are not included in the above totals.
Expansion activities to accommodate the Trust's growing Bakken production
continued at the Viewfield gas plant. Construction activities are well under
way for the expansion to 18 mmcf/d, which is expected to be complete by the
end of the fourth quarter of 2008. Design work and equipment ordering
continues for the mid 2009 expansion to 30 mmcf/d, which will accommodate the
Trust's growing Bakken production as well as Shelter Bay Bakken production and
other potential third party Bakken volumes. The Trust will earn processing
revenues on any natural gas volumes processed on behalf of Shelter Bay or
other third party producers.
Crescent Point acquired 0.9 net sections of undeveloped Bakken land in
the third quarter of 2008. Total undeveloped Bakken land holdings at the end
of the third quarter were 387 net sections.
During the quarter, the Trust successfully drilled and completed 1 (1.0
net) horizontal oil well in the Frobisher zone in the Viewfield area of
southeast Saskatchewan. In October the Trust followed up with a second
successful Frobisher well in the Viewfield area. These wells prove up two new
light oil pool discoveries in the shallow zones above the Bakken. Three
dimensional seismic and numerous oil shows in the zones above the Bakken
suggest the potential for several additional new pool or pool extension
discoveries. Crescent Point anticipates drilling 2 more shallow horizontal
wells in the fourth quarter and up to 10 more in 2009 with anticipation of
proving up additional light oil pool discoveries.
Also in the third quarter, the Trust drilled 6 (4.4 net) horizontal oil
wells at Manor and 4 (3.2 net) oil wells in various other areas of southeast
Saskatchewan, including 1 (0.7 net) oil well at Tatagwa. The Trust also
drilled 1 (0.7 net) water injection well at Tatagwa.
Restrictions on the Enbridge Pipelines (Saskatchewan) gathering system
were removed in June when the pipeline's Alida to Cromer expansion was
completed. The expansion reduced some of the need for incremental trucking in
the area; however, with Bakken production continuing to grow at a steady pace
in the area, bottlenecks are beginning to appear in certain sections of the
gathering system. Crescent Point believes that future restrictions will
materialize over the coming years, but not to the levels seen over the past 18
months.
Southwest Saskatchewan
At Cantuar in the third quarter, Crescent Point participated in the
drilling of 2 (1.1 net) wells with 100 percent success, adding 35 boe/d of
interest production. At Battrum, Crescent Point continued to optimize water
flood patterns and prepared plans to drill up to 15 (6.4 net) oil wells in the
fourth quarter. Crescent Point also participated in drilling 2 (0.3 net)
non-operated oil wells in the Eyehill area that added over 30 boe/d of initial
interest production.
South/Central Alberta
At Sounding Lake, the Trust drilled a total of 3 (2.7 net) wells
targeting the Cummings and Dina formations and recompleted 7 (6.8 net) wells
in the Sparky formation. These activities added more than 160 boe/d of
interest production. The Trust received regulatory approval to downspace the
Sparky formation and is preparing plans to commence water flood activities in
the formation by early 2009.
Northeast British Columbia and Peace River Arch, Alberta
In the third quarter, Crescent Point participated in 1 (0.2 net) Montney
gas well in the Pouce Coupe area that added 250 mcf/d of initial interest
natural gas production. The Trust is currently evaluating potential follow up
locations.
Shelter Bay Third Quarter Update
On October 1, 2008, Shelter Bay closed a $300 million private placement
equity financing, of which Crescent Point contributed $78.7 million. The
private placement financing, along with a $60 million third quarter increase
in Shelter Bay's credit facilities, position Shelter Bay well for significant
growth in core Crescent Point areas, including the southeast Saskatchewan
Bakken light oil resource play. In total, Shelter Bay has raised more than
$1.0 billion of debt and equity since inception in the first quarter of this
year.
During the third quarter of 2008, Shelter Bay aggressively pursued its
business strategy of growth in core Crescent Point areas. Shelter Bay has
acquired more than 100 net sections of undeveloped southeast Saskatchewan
Bakken land since the second quarter, including the October Crown land sale.
Shelter Bay also acquired an additional 3 net sections of undeveloped Lower
Shaunavon land in the period. To date, Shelter Bay has acquired the rights to
229 net sections of undeveloped Saskatchewan land, including 200 net sections
in the Bakken.
During the third quarter, Shelter Bay also drilled 26 Bakken horizontal
wells, including 16 on lands farmed out by the Trust. Crescent Point's share
of production from all farmout wells averaged more than 700 boe/d for the
quarter. Shelter Bay also fracture stimulated 26 Bakken horizontal wells. In
the Lower Shaunavon play, Shelter Bay drilled 3 horizontal wells which will be
fracture stimulated using the same technologies used in the Bakken play and
will be brought on production in the fourth quarter. Early results from the
Lower Shaunavon wells are encouraging and Shelter Bay plans to drill at least
2 more Lower Shaunavon wells in the fourth quarter.
Shelter Bay is poised for growth with its strong balance sheet and recent
$300 million private placement to fund future expansion opportunities within
Crescent Point's core areas. Shelter Bay currently has a development drilling
inventory of more than 425 Bakken and Lower Shaunavon drilling locations.
Including the October 2008 investment of $78.7 million, Crescent Point's
total investment in Shelter Bay is approximately $200 million, which equates
to a 21 percent interest. The Crescent Point financial and operating results
do not reflect the production or cash flows of Shelter Bay other than the
production and cash flows associated with the Trust's interests in the wells
farmed out to Shelter Bay by the Trust. Crescent Point accounts for its
investment in Shelter Bay using the equity method of accounting. Accordingly,
the Trust records its share of Shelter Bay net income or loss in the "equity
and other income" caption on the consolidated statements of operations,
comprehensive income and deficit.
OUTLOOK
Crescent Point continues to execute its proven business plan of creating
value added growth in reserves, production and cash flow through management's
integrated strategy of acquiring, exploiting and developing high quality, long
life, light and medium oil and natural gas properties. Crescent Point's strong
balance sheet, 3 1/2 year risk management program and high quality asset base
position the Trust well to maintain production and distributions through
volatile commodity price cycles.
The Trust estimates it has an interest in more than 6 billion barrels of
original oil in place gross and a reserve life index of 13.1 years on a proved
plus probable basis.
Crescent Point has an extensive low risk development drilling inventory
of nearly 1,400 net locations, representing more than $2.2 billion of future
development projects and more than 10 years of low risk drilling inventory to
sustain and grow current production levels. Through infill drilling,
production optimization and water flood implementation, management believes
the Trust has the potential to more than double its proved plus probable
reserves over time.
On June 16, 2008, Crescent Point announced a $200 million upward revision
to its 2008 development capital budget to $425 million from $225 million. In
addition, the Trust announced a 15 percent increase to its monthly
distribution and implemented a derivative crystallization and reset program
that increases 2009 and 2010 hedge prices to provide further sustainability to
the Trust's increased distribution rate.
In the third quarter of 2008, global financial markets entered into a
period of significant uncertainty marked by high profile bankruptcies of major
financial institutions, large increases in stock market volatility,
significant downward pressure on equities and overall tightening of credit
markets.
During this period, Crescent Point was successful in increasing its
credit facilities by $150 million and Shelter Bay raised $300 million of
equity in a private placement. The combined $450 million of financing
highlights the high quality nature of the asset bases and the robust economics
of the opportunities that lie ahead for both Crescent Point and Shelter Bay.
With the weakness in financial markets and the uncertainty over global
economic prospects, commodity prices have suffered significant declines since
the beginning of the third quarter. WTI prices peaked at nearly US$150 per
barrel in July before decreasing to levels in the US$60 range. NYMEX natural
gas prices have declined from the US$13 per mmbtu range in July to the US$6
range. Offsetting these declines has been a large decrease in the value of the
Canadian dollar, which had traded near par with the US dollar for most of the
year before falling to less than US$0.80. In Canadian dollar terms, WTI crude
is trading in the Cdn$80 per barrel range.
Crescent Point is well positioned to withstand the current market
uncertainty and to take advantage of acquisition opportunities. Crescent
Point's balance sheet is strong with projected 2009 net debt to 12 month cash
flow of 1.1 times and its 3 1/2 year risk management program provides cash
flow stability. The Trust's 10 year drilling inventory and current 140 well
fracture stimulation inventory provide long term sustainability and capital
investment flexibility at oil prices well below current levels.
In light of the uncertainty over capital markets and commodity prices,
Crescent Point does not anticipate finalizing its 2009 capital expenditure
budget until December of 2008. However, Crescent Point expects to spend less
capital in 2009 than in 2008, with most of the reductions coming in the areas
of facilities and land. Approximately 40 percent of the Trust's 2008 budget
was directed toward facilities and land. Despite expectations of lower capital
spending in 2009, Crescent Point expects 2009 average production to be in the
range of 37,500 boe/d and expects to exceed this level in the fourth quarter
of 2008.
Crescent Point's 3 1/2 year risk management program continues to provide
stability to the Trust's cash flow and distributions. As of October 28, 2008,
the Trust had hedged 56 percent, 53 percent, 42 percent and 27 percent of
production, net of royalty interest, for the balance of 2008, 2009, 2010 and
2011, respectively. Average hedge prices were greater than Cdn$79.00 per boe.
Hedge instruments utilized in the program include swaps, collars and put
options, providing average floor prices ranging from approximately Cdn$75.00
to Cdn$111.00 per boe, with upside potential if commodity prices strengthen
above current levels. The Trust has also initiated its first quarter 2012
hedge position, with 11 percent of production hedged in the Cdn$100.00 per boe
range.
Crescent Point continues to monitor its mark to market derivative
crystallization and reset program in 2008 with the potential for further
transactions in the fourth quarter should prices rise above current levels.
These transactions position the Trust well for increased future cash flows in
2009 and 2010 while providing an offset to taxable income in 2008.
Crescent Point's management believes that with the high quality reserve
base and development inventory, excellent balance sheet and solid risk
management program, the Trust is well positioned to continue generating strong
operating and financial results and delivering sustainable distributions
through 2009 and beyond.2008 Guidance
Crescent Point's 2008 guidance is as follows:
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Production
Oil and NGL (bbls/d) 32,000
Natural gas (mcf/d) 28,500
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Total (boe/d) 36,750
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Funds flow from operations ($000) 612
Funds flow from operations per unit - diluted ($) 4.88
Cash distributions per unit ($) 2.61
Payout ratio - per unit - diluted (%) 53
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Capital expenditures ($000)(1) 425
Wells drilled, net 140
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Pricing
Crude oil - WTI (US$/bbl) 102.25
Crude oil - WTI (Cdn$/bbl) 108.78
Natural gas - Corporate (Cdn$/mcf) 8.25
Exchange rate (US$/Cdn$) 0.94
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(1) The projection of capital expenditures excludes acquisitions, which
are separately considered and evaluated.
ON BEHALF OF THE BOARD OF DIRECTORS
(signed)
Scott Saxberg
President and Chief Executive Officer
November 10, 2008MANAGEMENT'S DISCUSSION & ANALYSIS
Management's discussion and analysis ("MD&A") is dated November 10, 2008
and should be read in conjunction with the unaudited interim consolidated
financial statements for the period ended September 30, 2008 and the audited
consolidated financial statements and MD&A for the year ended December 31,
2007, for a full understanding of the financial position and results of
operations of Crescent Point Energy Trust ("Crescent Point" or the "Trust").
Non-GAAP Financial Measures
Throughout this discussion and analysis, the Trust uses the terms "funds
flow from operations", "funds flow from operations per unit", "funds flow from
operations per unit-diluted", "net debt", "market capitalization" and "total
capitalization". These terms do not have any standardized meaning as
prescribed by Canadian generally accepted accounting principles ("GAAP") and,
therefore, may not be comparable with the calculation of similar measures
presented by other issuers.
Funds flow from operations is calculated based on cash flow from
operating activities before changes in non-cash working capital and asset
retirement obligation expenditures. Funds flow from operations per
unit-diluted is calculated based on cash flow from operating activities before
changes in non-cash working capital and asset retirement obligation
expenditures excluding the cash portion of unit-based compensation. Management
utilizes funds flow from operations as a key measure to assess the ability of
the Trust to finance distributions, operating activities, capital expenditures
and debt repayments. Funds flow from operations as presented is not intended
to represent cash flow from operating activities, net earnings or other
measures of financial performance calculated in accordance with Canadian GAAP.The following table reconciles the cash flow from operating activities to
funds flow from operations:
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Three months ended Nine months ended
September 30 September 30
% %
($000) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Cash flow from
operating
activities 153,875 80,722 91 459,330 233,535 97
Changes in
non-cash
working capital 29,604 11,206 164 21,224 8,827 140
Asset retirement
expenditures 364 287 27 1,943 976 99
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Funds flow from
operations 183,843 92,215 99 482,497 243,338 98
-------------------------------------------------------------------------Net debt is calculated as current liabilities plus bank indebtedness less
current assets and long term investments but excludes risk management assets
and liabilities. Management utilizes net debt as a key measure to assess the
liquidity of the Trust. Market capitalization is calculated by applying the
period end closing unit trading price to the number of trust units
outstanding. Market capitalization is an indication of the enterprise value.
Total capitalization is calculated as market capitalization and current
liabilities plus bank indebtedness, less current assets, and long term
investments, excluding the risk management assets and liabilities. Total
capitalization is used by management to measure the proportion of net debt in
the Trust's capital structure.
Forward-Looking Information
Certain statements contained in this report constitute forward-looking
statements and are based on the Trust's beliefs and assumptions based on
information available at the time the assumption was made. By its nature, such
forward-looking information involves known and unknown risks, uncertainties
and other factors that may cause actual results or events to differ materially
from those anticipated in such forward-looking statements. The Trust and
Crescent Point Resources Inc. ("CPRI"), the administrator of the Trust,
believe the expectations reflected in those forward-looking statements are
reasonable but no assurance can be given that these expectations will prove to
be correct and such forward-looking statements should not be unduly relied
upon. These statements are effective only as of the date of this report.
The material assumptions in making these forward-looking statements are
disclosed in this analysis under the headings "Cash Distributions", "Capital
Expenditures", "Asset Retirement Obligation", "Liquidity and Capital
Resources", "Critical Accounting Estimates", "New Accounting Pronouncements"
and "Outlook".
This disclosure contains certain forward-looking estimates that involve
substantial known and unknown risks and uncertainties, certain of which are
beyond Crescent Point's control, including the impact of general economic
conditions; industry conditions including changes in laws and regulations
including the adoption of new environmental laws and regulations and changes
in how they are interpreted and enforced; increased competition and the lack
of availability of qualified personnel or management; fluctuations in
commodity prices, foreign exchange or interest rates; stock market volatility;
and obtaining required approvals of regulatory authorities. In addition, there
are numerous risks and uncertainties associated with oil and gas operations
and the evaluation of oil and gas reserves. Therefore, Crescent Point's actual
results, performance or achievement could differ materially from those
expressed in, or implied by, these forward-looking estimates and if such
actual results, performance or achievements transpire or occur, or if any of
them do so, there can be no certainty as to what benefits Crescent Point will
derive therefrom.
A barrel of oil equivalent ("boe") is based on a conversion rate of six
thousand cubic feet of natural gas to one barrel of oil.
Results of Operations
Production
Production increased by 36 percent and 39 percent for the three and nine
months ended September 30, 2008 compared to the same periods in 2007. The
increase is primarily due to the 2007 and 2008 corporate acquisitions in the
Viewfield Bakken resource play and the Trust's successful drilling and
fracture stimulation programs, offset slightly by natural declines.
On October 22, 2007, the Trust closed the acquisition of Innova
Exploration Ltd. ("Innova"), which added over 4,300 boe/d of light oil and
natural gas assets, including more than 2,800 boe/d from the Viewfield Bakken
resource play. On January 16, 2008, the Trust closed the acquisition of Pilot
Energy Ltd. ("Pilot"), which added over 1,000 boe/d of high netback oil, 50
percent of which was in the Viewfield Bakken resource play. Lastly, on March
26, 2008, the Trust closed the acquisition of light oil assets from Shelter
Bay Energy Inc. ("Shelter Bay") in connection with Shelter Bay's corporate
acquisition of Landex Petroleum Corp. ("Landex"). This property acquisition
added over 1,500 boe/d in the Trust's core area of southeast Saskatchewan.
Crescent Point's successful drilling program also contributed to the
significant increase in production in both the third quarter and nine month
period ended September 30, 2008. The Trust drilled 58 (45.2 net) wells in the
third quarter of 2008, focused primarily in southeast Saskatchewan and the
Viewfield Bakken resource play.
The Trust's weighting to oil in the third quarter of 2008 remained
consistent with the comparative period.-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
% %
2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Crude oil and
NGL (bbls/d) 32,611 23,846 37 31,805 22,915 39
Natural gas (mcf/d) 30,116 22,357 35 29,199 20,626 42
-------------------------------------------------------------------------
Total (boe/d) 37,630 27,572 36 36,672 26,353 39
-------------------------------------------------------------------------
Crude oil
and NGL (%) 87 86 1 87 87 -
Natural gas (%) 13 14 (1) 13 13 -
-------------------------------------------------------------------------
Total (%) 100 100 - 100 100 -
-------------------------------------------------------------------------Marketing and Prices
The Trust's selling price for oil increased significantly, from $69.86
per bbl in the third quarter of 2007 to $114.53 per bbl in the third quarter
of 2008, primarily due to the 57 percent increase in the US$ WTI benchmark
price. Crescent Point's oil differential for the three months ended September
30, 2008 of $8.52 per bbl was comparable to $8.61 per bbl for the same period
in 2007. The Trust's differential as a percentage of Cdn$ WTI improved
significantly from 11 percent to 7 percent for the three month period ended
September 30, 2007 and 2008, respectively. This improvement in corporate
differentials reflects the growth of high quality Bakken crude production from
successful drilling and acquisition programs.
In the nine months ended September 30, 2008, the Trust's average selling
price for crude oil increased by 67 percent over the comparable 2007 period as
a result of the 71 percent increase in the $US WTI benchmark price, partially
offset by the stronger Canadian dollar. The corporate oil differential for the
nine months ended September 30, 2008 was $8.68 per bbl compared to $8.84 per
bbl in the comparable 2007 period. Crescent Point's oil differential as a
percent of Cdn$ WTI narrowed from 12 percent to 8 percent for the nine month
period ended September 30, 2007 and 2008, respectively. This trend is the
result of the Trust's overall improved crude quality from increased Bakken
production.
The Trust's average selling price for gas increased 48 percent to $7.99
per mcf in the third quarter of 2008 from $5.40 per mcf in the third quarter
2007. This compares with a 50 percent increase in the AECO daily gas price.
Similarly, the Trust's average selling price for the nine month period ended
September 30, 2008 showed a 32 percent increase from the same period in 2007,
corresponding with the 32 percent increase in the AECO daily gas price.
The differential in the Trust's gas price compared to the AECO daily
price reflects the Trust's portfolio of gas marketing contracts and impact of
liquids rich gas portfolio.-------------------------------------------------------------------------
Average Selling Prices(1) Three months ended Nine months ended
September 30 September 30
% %
2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Crude oil and
NGL ($/bbl) 114.53 69.86 64 107.02 63.97 67
Natural gas ($/mcf) 7.99 5.40 48 8.72 6.61 32
-------------------------------------------------------------------------
Total ($/boe) 105.65 64.80 63 99.76 60.80 64
-------------------------------------------------------------------------
(1) The average selling prices reported are before realized derivative
losses and transportation charges.
-------------------------------------------------------------------------
Benchmark Pricing Three months ended Nine months ended
September 30 September 30
% %
2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
WTI crude oil
(US$/bbl) 118.13 75.33 57 113.39 66.26 71
WTI crude oil
(Cdn$/bbl) 123.05 78.47 57 115.70 72.81 59
AECO natural gas(1)
(Cdn$/mcf) 7.75 5.16 50 8.64 6.53 32
Exchange rate -
US$/Cdn$ 0.96 0.96 - 0.98 0.91 8
-------------------------------------------------------------------------
(1) The AECO natural gas price reported is the average daily spot price.Derivatives and Risk Management
Management of cash flow variability is an integral component of Crescent
Point's business strategy. Changing business conditions are monitored
regularly and reviewed with the Board of Directors of CPRI, the administrators
of the Trust, to establish risk management guidelines used by management in
carrying out the Trust's strategic risk management program. The risk exposure
inherent in movements in the price of crude oil and natural gas, fluctuations
in the US/Cdn dollar exchange rate, changes in the price of power and interest
rate movements on long-term debt are all proactively managed by Crescent Point
through the use of derivatives with investment grade counterparties. The Trust
considers these contracts to be an effective means to manage cash flow.
The Trust's crude oil and natural gas derivatives are referenced to WTI
and AECO, unless otherwise noted. Crescent Point utilizes a variety of
derivatives including swaps, collars and puts to protect against downward
commodity price movements while providing the opportunity for some
participation during periods of rising prices.
The Trust incurred total realized derivative losses of $52.6 million and
$164.5 million for the three and nine months ended September 30, 2008 compared
to a $3.0 million loss and $1.4 million gain in the comparative 2007 periods.
The total derivative losses in the nine months ended September 30, 2008
consist of operating realized derivative losses of $130.0 million plus $34.5
million of realized derivative losses resulting from a derivative
crystallization and reset program (discussed below). The Trust did not realize
any derivative losses in the three month period ended September 30, 2008 from
the derivative crystallization and reset program.
Crescent Point's operating realized derivative loss for oil was $52.3
million for the third quarter of 2008 and $129.6 million for the nine months
ended September 30, 2008, compared to a $3.5 million loss and a $0.8 million
gain for the same periods in 2007, respectively. The increases in the losses
are attributable to the significant increase in the Cdn$ WTI benchmark price
over 2007 partially offset by an increase in derivative oil prices. The Cdn$
WTI benchmark price increased 57 percent for the three month period ended
September 30, 2008 over 2007 for the same period, while the Trust's average
derivative oil price for the quarter increased 19 percent or $14.16 per
barrel, from $74.93 per barrel in 2007 to $89.09 per barrel in 2008. A similar
trend was seen in the nine month period ended September 30, 2008 compared to
the same period in 2007.
Crescent Point's loss pursuant to its derivative crystallization and
reset program ("derivative crystallization") announced June 16, 2008 was $34.5
million. The Trust crystallized a portion of its forward mark-to-market losses
on swaps for 2009 and 2010 and reset the derivatives using a combination of
swaps and costless collars at market prices at the end of the second quarter,
which were significantly higher than the Trust's average derivative price. The
impact of resetting the 2009 and 2010 derivatives will increase the Trust's
2009 and 2010 funds flow from operations for derivative transactions. This
derivative crystallization program will be monitored in the fourth quarter of
2008 for potential further transactions in order to position the Trust to
increase future cash flows in 2009 and 2010, reduce 2008 taxable income and
sustain distributions at the current rate.The following is a summary of the realized derivative gains (losses) on
oil and gas contracts:
-------------------------------------------------------------------------
($000, except per boe Three months ended Nine months ended
and volume amounts) September 30 September 30
% %
2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Average crude oil
volumes hedged
(bbls/d) 16,750 10,750 56 16,444 10,832 52
Crude oil realized
derivative gain
(loss) (52,337) (3,499) (1,396) (129,609) 843 (15,475)
per bbl (17.44) (1.59) (997) (14.87) 0.13 (11,538)
-------------------------------------------------------------------------
Average natural gas
volumes
hedged (GJ/d) 2,000 4,000 (50) 2,000 3,341 (40)
Natural gas
realized
derivative
gain (loss) (232) 526 (144) (394) 547 (172)
per mcf (0.08) 0.26 (131) (0.05) 0.10 (150)
-------------------------------------------------------------------------
Average barrels
of oil equivalent
hedged (boe/d) 17,066 11,382 50 16,760 11,360 48
Realized
derivative
gain (loss) (52,569) (2,973) (1,668) (130,003) 1,390 (9,453)
per boe (15.18) (1.17) (1,197) (12.94) 0.19 (6,911)
-------------------------------------------------------------------------
Derivative
crystallization
loss - - - (34,483) - -
per boe - - - (3.43) - -
-------------------------------------------------------------------------
Total realized
derivative
gain (loss) (52,569) (2,973) (1,668) (164,486) 1,390 (11,934)
per boe (15.18) (1.17) (1,197) (16.37) 0.19 (8,716)
-------------------------------------------------------------------------The Trust has not designated any of its risk management activities as
accounting hedges under the Canadian Institute of Chartered Accountants (the
"CICA") section 3855 and, accordingly, has marked-to-market its derivatives.
The Trust's unrealized derivative gain for the third quarter of 2008 was
$418.2 million compared to a $3.4 million gain for the same period in 2007.
The gain for the third quarter of 2008 is primarily attributable to the
significant decrease in the Cdn$ WTI benchmark price at September 30, 2008
compared to June 30, 2008. Also contributing to the gain was the increase in
the volume hedged.
For the nine month period ended September 30, 2008 the unrealized losses
were $122.4 million compared to a gain of $6.8 million in the same period of
2007. The losses for the nine month period ended September 30, 2008 are
primarily attributable to the significant increase in the Cdn$ WTI benchmark
price at September 30, 2008 compared to the same period in 2007.
The Trust's risk management policy allows for hedging a forward profile
of three and a half years, and up to 65 percent of net royalty interest
production. As at October 28, 2008, the Trust had hedged 56 percent, 53
percent, 42 percent, 27 percent and 11 percent of production, net of royalty
interest, for the balance of 2008, 2009, 2010, 2011 and the first quarter of
2012, respectively.Crescent Point has the following derivative contracts in place as at
October 28, 2008:
-------------------------------------------------------------------------
Financial WTI Crude Oil Contracts - Canadian Dollar(1)
Average Average
Collar Collar
Average Sold Bought Average Average
Average Swap Call Put Bought Put
Volume Price Price Price Put Price Premium
Term (bbls/d) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/bbl)
-------------------------------------------------------------------------
2008
October -
December 16,750 78.86 88.73 73.27 72.58 (6.66)
2009 16,000 83.82 95.48 76.24 70.46 (6.03)
2010 12,750 85.17 96.35 79.74 72.90 (4.51)
2011 8,122 106.05 124.46 95.90 - -
2012
January -
March 3,000 102.08 123.00 90.00 - -
-------------------------------------------------------------------------
(1) The volumes and prices reported are the weighted average volumes and
prices for the period.
-------------------------------------------------------------------------
Financial AECO Natural Gas Contracts - Canadian Dollar
Average Average
Average Bought Sold
Volume Put Price Call Price
Term (GJ/d) ($Cdn/GJ) ($Cdn/GJ)
-------------------------------------------------------------------------
2008 October 2,000 6.75 7.75
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial Interest Rate Contracts - Canadian Dollar
Notional Fixed
Principal Annual
Term Contract ($Cdn) Rate (%)
-------------------------------------------------------------------------
October 2008 - February 2009 Swap 50,000,000 4.37
October 2008 - May 2009 Swap 75,000,000 3.16
October 2008 - November 2010 Swap 75,000,000 4.35
October 2008 - June 2011 Swap 75,000,000 3.89
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial Power Contracts - Canadian Dollar
Volume Fixed Rate
Term Contract (MW/h) ($Cdn/MW/h)
-------------------------------------------------------------------------
October 2008 - December 2008 Swap 3.0 63.25
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Physical Power Contracts - Canadian Dollar
Volume Fixed Rate
Term (MW/h) ($Cdn/MW/h)
-------------------------------------------------------------------------
October 2008 - December 2009 1.0 82.45
January 2009 - December 2009 3.0 81.25
January 2010 - December 2010 3.0 80.75
-------------------------------------------------------------------------Revenues
Oil revenues increased 124 percent and 133 percent in the three and nine
months ended September 30, 2008 compared to the same periods in 2007. The
significant increase in oil sales is due to the 57 percent and 71 percent
increases in the US$ WTI benchmark price for the three month and nine month
periods ending September 30, 2008 as compared to those periods in 2007, as
well as the 37 percent and 39 percent increases in production over the
comparable periods in 2007. Production increases are due to the acquisitions
completed in 2007 and 2008 and the Trust's successful drilling program.
Natural gas sales increased 99 percent and 87 percent in the three and
nine months ended September 30, 2008 compared to the same periods in 2007 due
to increases in both the AECO daily gas prices and production as a result of
acquisitions and the Trust's successful drilling program.
On July 23, 2008, the Trust announced that it has a potential exposure to
SemCanada Crude Company ("SemCanada"), a Canadian subsidiary of SemGroup, L.P.
("SemGroup"), relating to the marketing of a portion of the Trust's crude oil
and liquids production. The contract pertaining to the majority of the
production volumes purchased by SemCanada was previously terminated and does
not represent an ongoing exposure for the Trust. SemGroup filed a voluntary
petition for reorganization under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware and SemCanada also
filed for creditor protection in Canada under The Companies' Creditors
Arrangement Act. The Trust's actual exposure is closer to $30 million based on
confirmed production volumes and contract prices. As of this date, the Trust
is not able to quantify the portion, if any, of the exposure that will be
collected and as a result a provision has not been recorded.-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
% %
($000)(1) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Crude oil and
NGL sales 343,614 153,253 124 932,616 400,190 133
Natural gas
sales 22,134 11,115 99 69,796 37,237 87
-------------------------------------------------------------------------
Revenues 365,748 164,368 123 1,002,412 437,427 129
-------------------------------------------------------------------------
(1) Revenue is reported before transportation charges and realized
derivatives.Transportation Expenses
Transportation costs decreased from $1.75 per boe in 2007 to $1.70 per
boe for the three month period ended September 30, 2008. The decrease
primarily relates to temporary relief from pipeline constraints in southeast
Saskatchewan.
Transportation costs for the nine months ended September 30, 2008
increased to $1.97 per boe from $1.68 per boe for the same period in 2007.
This increase is due to an increase in the number of single well batteries in
the Viewfield area, as well as higher oil and trucking costs incurred due to
Enbridge Pipeline (Saskatchewan) pipeline constraints in southeast
Saskatchewan.-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
($000), except per % %
boe amounts) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Transportation
expenses 5,876 4,429 33 19,795 12,099 64
Per boe 1.70 1.75 (3) 1.97 1.68 17
-------------------------------------------------------------------------
Royalty Expenses
Royalties as a percent of sales increased two percent in the third quarter
of 2008 compared to the same period in 2007, and increased one percent for the
nine month period ended September 30, 2008 over the comparable period in 2007.
The increase in royalties are primarily associated with royalty holiday
expiries and the impact of high benchmark WTI prices on crown royalty
formulas.
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
($000), except per % %
boe amounts) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Total royalties 71,563 29,853 140 185,553 79,620 133
As a % of oil
and gas sales 20 18 2 19 18 1
Per boe 20.67 11.77 76 18.47 11.07 67
-------------------------------------------------------------------------Operating Expenses
Operating expense per boe increased six percent in the third quarter of
2008 compared to the same period in 2007 but decreased four percent for the
nine month period ended September 30, 2008 from 2007. Operating expenses for
the third quarter of 2008 were negatively impacted by maintenance and
turnarounds routinely scheduled for the summer months. The Trust continues to
forecast full year 2008 operating expenses in the $9.00 per boe range.-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
($000), except per % %
boe amounts) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Operating expenses 33,173 22,859 45 89,732 66,726 34
Per boe 9.58 9.01 6 8.93 9.27 (4)
-------------------------------------------------------------------------Netbacks
The Trust's operating netback, after realized financial instruments, for
the third quarter of 2008 increased significantly to $58.52 per boe in 2008
from $41.10 per boe for the same period in 2007. The increase in the Trust's
operating netback is primarily due to significantly higher average selling
prices resulting from higher market oil prices and reduced corporate oil
differentials. Offsetting this increase were increased realized derivative
losses and higher royalty and operating costs. As discussed above, many of the
factors driving the higher operating netback are associated with the expanding
Viewfield Bakken resource play, which, compared to the Trust's other core
properties, realizes narrow price differentials, low royalty rates and low
operating costs. The Viewfield Bakken netback realized for the third quarter
of 2008 was $88.74 per boe.
The operating netback for the nine month period ended September 30, 2008
increased 47 percent to $57.45 per boe compared to $38.97 for the same period
in 2007. The increase in the Trust's operating netback is primarily due to
significantly higher average selling prices resulting from higher market oil
prices and narrower corporate oil differentials, along with lower operating
costs. Offsetting these increases were higher royalty and transportation costs
and increased realized derivative losses.
After adjusting for the Trust's derivative crystallization, the Trust's
netback for the nine month period ended September 30, 2008 was reduced by
$3.43 per boe to $54.02 per boe. As discussed this realized derivative
crystallization loss will be recovered through higher reset derivative prices
entered into in 2009 and 2010.-------------------------------------------------------------------------
Three months ended September 30
2008 2007
-------------------------------------------------------------------------
Crude Oil Natural
and NGL Gas Total Total %
($/bbl) ($/mcf) ($/boe) ($/boe) Change
-------------------------------------------------------------------------
Average selling price 114.53 7.99 105.65 64.80 63
Royalties (22.40) (1.57) (20.67) (11.77) 76
Operating expenses (9.93) (1.22) (9.58) (9.01) 6
Transportation (1.71) (0.27) (1.70) (1.75) (3)
-------------------------------------------------------------------------
Netback prior to
realized derivatives 80.49 4.93 73.70 42.27 74
-------------------------------------------------------------------------
Realized loss on derivatives (17.44) (0.08) (15.18) (1.17) 1,197
-------------------------------------------------------------------------
Operating netback 63.05 4.85 58.52 41.10 42
-------------------------------------------------------------------------
Realized loss on
derivative crystallization - - - - -
-------------------------------------------------------------------------
Netback 63.05 4.85 58.52 41.10 42
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended September 30
2008 2007
-------------------------------------------------------------------------
Crude Oil Natural
and NGL Gas Total Total %
($/bbl) ($/mcf) ($/boe) ($/boe) Change
-------------------------------------------------------------------------
Average selling price 107.02 8.72 99.76 60.80 64
Royalties (19.92) (1.49) (18.47) (11.07) 67
Operating expenses (8.96) (1.46) (8.93) (9.27) (4)
Transportation (2.07) (0.22) (1.97) (1.68) 17
-------------------------------------------------------------------------
Netback prior to
realized derivatives 76.07 5.55 70.39 38.78 82
-------------------------------------------------------------------------
Realized gain (loss)
on derivatives (14.87) (0.05) (12.94) 0.19 (6,911)
-------------------------------------------------------------------------
Operating netback 61.20 5.50 57.45 38.97 47
-------------------------------------------------------------------------
Realized loss on
derivative
crystallization(1) (3.96) - (3.43) - -
-------------------------------------------------------------------------
Netback 57.24 5.50 54.02 38.97 39
-------------------------------------------------------------------------
(1) The Trust realized a $34.5 million loss in the nine month period
ended September 30, 2008 resulting from the crystallization of
various oil contracts.General and Administrative Expenses
General and administrative expenses per boe decreased 30 percent in the
third quarter of 2008 compared to the third quarter of 2007. The decrease is
primarily due to the successful integration of acquisitions completed over the
past year without significant incremental general and administrative expenses.
The general and administrative expenses for the nine months ended
September 30, 2008 increased 9 percent to $1.73 per boe from $1.59 per boe for
the same period in 2007. The increase is primarily due to the Board of
Directors awarding a special bonus to employees of the Trust in June 2008 to
recognize their efforts contributing to the successful growth and net asset
value appreciation of the Trust over the past two and a half years.
Excluding the special bonus award, general and administration expenses
for the nine month period September 30, 2008 decreased by 31 percent to $1.09
per boe from $1.59 per boe.-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
($000), except per % %
boe amounts) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
General and
administrative
costs 5,421 4,589 18 25,820 14,563 77
Capitalized (2,204) (1,239) 78 (8,396) (3,119) 169
-------------------------------------------------------------------------
General and
administrative
expenses 3,217 3,350 (4) 17,424 11,444 52
Per boe 0.93 1.32 (30) 1.73 1.59 9
-------------------------------------------------------------------------Restricted Unit Bonus Plan
The Trust has a Restricted Unit Bonus Plan and under the terms of this
plan, the Trust may grant restricted units to directors, officers, employees
and consultants. Restricted units vest at 33 1/3 percent on each of the first,
second and third anniversaries of the grant date or at a date approved by the
Board of Directors. Restricted unitholders are eligible for monthly
distributions, immediately upon grant.
On May 30, 2008, at the annual general meeting, the unitholders approved
an increase in the maximum number of trust units issuable under the Restricted
Unit Bonus Plan from 5,000,000 units to 11,000,000 units. The Trust had
2,291,837 restricted units outstanding at September 30, 2008 compared with
1,403,600 units outstanding at September 30, 2007.
The Trust recorded compensation expense and contributed surplus of $9.3
million for the third quarter ended September 30, 2008, based on the fair
value of the units on the date of grant, an increase of 163 percent over the
same period of 2007. Additionally, the Trust recorded $1.2 million of cash
distributions on restricted units, an increase of 79 percent from $0.7 million
in the third quarter 2007. The total cash and non-cash unit based compensation
recorded in the third quarter of 2008 was $10.4 million as compared to $4.2
million for the same 2007 period, an increase of 150 percent. The increase is
primarily due to the issuance approved by the Board of Directors effective
July 1, 2008 of 551,622 restricted units to employees of the Trust in
conjunction with the special bonus award. The increase in the number of
restricted units and corresponding unit-based compensation expense is also
attributable to the growth in the Trust's operations and industry pressures to
retain and attract high quality employees. A similar trend was experienced for
the nine month period ended September 30, 2008 as compared to 2007.-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
($000), except per % %
boe amounts) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Cash unit-based
compensation
expense 1,172 653 79 2,343 1,438 63
Non-cash unit-based
compensation
expense 9,277 3,526 163 17,752 10,592 68
-------------------------------------------------------------------------
Total 10,449 4,179 150 20,095 12,030 67
Per boe 3.02 1.65 83 2.00 1.67 20
-------------------------------------------------------------------------Interest Expense
Interest per boe increased 32 percent in the third quarter of 2008
compared to the same period in 2007. For the nine month period ended September
30, 2008, interest per boe increased 25 percent over the comparable period in
2007. These increases are attributable to increased amounts drawn under credit
facilities, reflecting the growth of the Trust's asset base and operations.
This increase was partially offset by a decrease in the Trust's effective
interest rate resulting from a decrease in the prime interest rate and related
banker's acceptance rates over the comparable 2007 period.
Crescent Point actively manages exposure to fluctuations in interest
rates through interest rate swaps and short term banker's acceptances (refer
to Derivatives and Risk Management section above).-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
($000), except per % %
boe amounts) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Interest expense 8,514 4,727 80 23,784 13,698 74
Per boe 2.46 1.86 32 2.37 1.90 25
-------------------------------------------------------------------------Depletion, Depreciation and Amortization
The depletion, depreciation and amortization ("DD&A") rate decreased
slightly to $23.25 per boe for the three month period ended September 30, 2008
from $24.75 in the same period of 2007. The trend for the nine month period
ended September 30, 2008 was consistent with the three month period ended
September 30, 2008. The lower DD&A rate in both the three and nine month
periods ended September 30, 2008 is due to the impact of increased reserves
from positive technical revisions relative to the capital spending on drilling
and acquisitions completed in 2007 and 2008.-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
($000), except per % %
boe amounts) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Depletion,
depreciation and
amortization 80,490 62,791 28 232,889 174,906 33
Per boe 23.25 24.75 (6) 23.18 24.31 (5)
-------------------------------------------------------------------------Taxes
Capital and other tax expense consists of Saskatchewan Corporation
Capital Tax Resource Surcharge. Capital and other tax expense for the third
quarter of 2008 increased 76 percent over 2007 due to an increase in the
Trust's Saskatchewan based production, primarily as a result of the Innova and
Pilot acquisitions completed over the past year and an increase in the Trust's
realized oil prices. The trend is generally consistent for the nine month
period ended September 30, 2008.
Future income tax increased from a $9.7 million future income tax expense
in the third quarter of 2007 to a $14.7 million future income tax expense in
the third quarter of 2008. The expense in the third quarter of 2008 relates
primarily to changes in temporary differences expected to reverse in 2011 and
onward. The most significant change in temporary differences relates to
unrealized gains on 2011 derivative contracts.
The future income tax expense of $3.5 million for the nine month period
ended September 30, 2008 is attributable to changes in temporary differences
expected to reverse in 2011 and onward and increases in future tax
liabilities, as there was a larger distribution of income and temporary
differences to corporate entities during the period, which are taxed at higher
rates than the trust entities.
On June 9, 2008, the Federal government's Bill C-50, the 2008 budget
implementation act, passed third reading. Bill C-50 includes amendments to the
provincial component of trust tax. Beginning with the 2009 taxation year, the
provincial component of trust tax will be based on the general provincial
corporate tax rate in each province in which the trust has a permanent
establishment instead of the deemed 13 percent provincial tax rate. As a
result of the dissolution of the Federal House of Commons on September 7,
2008, prior to the Federal election in October, all pending legislation was
terminated. As a result, the proposed change in the provincial component of
trust tax does is not considered substantively enacted and the changes to the
provincial tax rates have not been reflected in the future income tax figures.
On July 14, 2008, the Department of Finance released draft legislation to
allow the conversion of SIFT trusts into corporations. The legislation has two
main elements. The first allows unitholders to sell their units to a taxable
Canadian corporation on a tax-deferred basis. The second element provides two
alternatives for the tax-deferred elimination of trusts. The draft legislation
provides that trusts will have a limited period of time, until December 31,
2012, to convert to corporations on a tax-deferred basis. The draft
legislation also included draft income tax regulations regarding the
calculation of the provincial tax rate which will apply as part of the SIFT
tax. The dissolution of the Federal House of Commons on September 7, 2008 also
terminated this pending legislation. It is expected the Department of Finance
will re-introduce draft legislation in a form similar to that of the pending
legislation. Crescent Point is currently reviewing the impact of the
previously proposed legislative amendments to the Trust's structure.-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
% %
($000) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Capital and other
tax expense 5,821 3,309 76 16,798 10,520 60
Future income
tax expense 14,677 9,679 52 3,458 3,208 8
-------------------------------------------------------------------------Funds Flow, Cash Flow and Net Income
Funds flow from operations increased to $183.8 million in the third
quarter of 2008 from $92.2 million in the third quarter of 2007 and increased
to $1.45 per unit - diluted from $0.89 per unit - diluted, respectively. The
increase in funds flow from operations and funds flow from operations per unit
- diluted is primarily the result of the Trust's higher operating netbacks and
production volumes. The Trust's operating netback increased by 42 percent due
primarily to significantly higher Cdn$ WTI benchmark pricing, partially offset
by higher realized derivative losses and royalty and operating costs. The
Trust's production also increased 36 percent, largely as a result of the
acquisitions of Innova, Pilot and the farmout agreement with Shelter Bay
completed over the past year, combined with the Trust's successful drilling
program.
In the nine month period ending September 30, 2008, funds flow from
operations increased 98 percent to $482.5 million compared to $243.3 million
in the same period of 2007, due to higher operating netbacks and increased
production volumes. Funds flow from operations per unit - diluted increased 54
percent to $3.86 per unit - diluted, consistent with the explanation for the
three month period.
Cash flow from operating activities for the third quarter 2008 increased
to $153.9 million from $80.7 million in the third quarter 2007. Cash flow from
operating activities per unit - diluted increased 56 percent to $1.22 per unit
- diluted in the third quarter 2008 from $0.78 per unit - diluted for the same
period in 2007.
In the nine month period ending September 30, 2008, cash flow from
operating activities increased 97 percent to $459.3 million and $3.68 per unit
- diluted, compared to $233.5 million and $2.40 per unit - diluted for the
same period in 2007, for the same reasons discussed above, as well as changes
in working capital.
Net income for the third quarter of 2008 increased to $497.8 million from
$18.4 million in the third quarter of 2007, primarily as a result of the
$418.2 million unrealized derivative gain on derivatives partially offset by
$52.6 million of realized losses on derivatives. The significant increase in
the unrealized gain is the result of a significant drop in $Cdn WTI forward
pricing at September 30, 2008 as compared to the previous quarter. The trend
in the net income per unit - diluted was also driven by the same factors.
The Trust recorded net income of $102.7 million for the nine month period
ended September 30, 2008, as compared to a net income of $58.2 million for the
same period in 2007, due to increased earnings from operating netbacks and
higher production reduced by realized derivative losses of $164.5 million and
unrealized derivative losses of $122.4 million in 2008. In contrast, 2007 had
lower operating netbacks and production, realized derivative income of $1.4
million and unrealized derivative income of $6.8 million. The 2008 losses were
the result of significantly higher $Cdn WTI forward pricing at September 30,
2008 compared to the prior year. The trend in the net income per unit -
diluted was also driven by the same factors.
Excluding the derivative crystallization of $34.5 million, funds flow
from operations for the nine month period ended September 30, 2008 would have
been $517.0 million or $4.14 per unit - diluted. Cash flow from operating
activities for the nine months ended September 30, 2008 excluding the
derivative crystallization would have been $493.8 million or $3.96 per unit -
diluted. Excluding the $34.5 million derivative crystallization net income
would have been $137.2 million or $1.11 per unit - diluted for the nine months
ended September 30, 2008. Lastly, the realized derivative loss for the nine
months ended September 30, 2008 would have been $130.0 million.
As noted in the Derivatives and Risk Management section, the Trust has
not designated any of its risk management activities as accounting hedges
under the CICA Handbook section 3855 and, accordingly, has marked-to-market
its derivatives.
Crescent Point uses financial derivatives, including swaps, costless
collars and put options, to reduce the volatility of the selling price of its
crude oil and natural gas production. This provides a measure of stability to
the Trust's cash flows and distributions over time.
The Trust's derivatives portfolio extends out 3 1/2 years from the
current quarter.
The CICA Handbook section 3855 "Financial Instruments - Recognition and
Measurement", gives guidelines for mark to market accounting for financial
derivatives. Financial derivatives that have not settled during the current
quarter are marked to market each quarter. The change in mark to market from
the previous quarter represents a gain or loss that is recorded on the income
statement. As such, if benchmark oil and natural gas prices rise during the
quarter, the Trust records a loss based on the change in price multiplied by
the volume of oil and natural gas hedged. If prices fall during the quarter,
the Trust records a gain. The prices used to record the actual gain or loss
are subject to an adjustment for volatility, then the resulting gain (asset)
or loss (liability) is discounted to a present value using a risk-free rate.
The Trust's underlying physical reserves are not marked to market each
quarter, hence no gain or loss associated with price changes is recorded; the
Trust realizes the benefit/detriment of any price increase/decrease in the
period which the physical sales occur.
The Trust's financial results should be viewed with the understanding
that the future gain or loss on financial derivatives is recorded in the
current period's results, while the future value of the underlying physical
sales is not.-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
($000), except per % %
unit amounts) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Funds flow from
operations 183,843 92,215 99 482,497 243,338 98
Funds flow from
operations per
unit - diluted(1) 1.45 0.89 63 3.86 2.50 54
Cash flow from
operating
activities 153,875 80,722 91 459,330 233,535 97
Cash flow from
operating
activities per
unit-diluted(1) 1.22 0.78 56 3.68 2.40 53
Net income 497,815 18,410 2,604 102,691 58,181 77
Net income per
unit - diluted(1) 3.92 0.18 2,078 0.83 0.60 38
-------------------------------------------------------------------------
(1) Per unit - diluted is calculated by excluding the cash portion of
unit based compensation.Cash Distributions
In June 2008, the Trust increased its monthly distribution from $0.20 per
unit to $0.23 per unit.
Distributions for the three and nine month periods ending September 30,
2008 were $0.69 and $1.92 per unit, compared to $0.60 and $1.80 for the same
periods in 2007. The distribution increase is the result of Crescent Point's
growing cash flow per unit, which is due to higher than expected commodity
prices, better than expected production levels and higher netbacks due to the
Trust's successful Bakken drilling program. Crescent Point is well positioned
to maintain its current monthly distribution over time as the Trust continues
to exploit and develop its asset base. The Trust's risk management strategy
minimizes corporate price volatility and provides a measure of sustainability
to distributions through periods of fluctuating market prices.
The Trust's derivative crystallization and reset program, discussed
above, will provide further certainty to 2009 and 2010 cash flows and
distributions. The impact of resetting the 2009 and 2010 derivatives will
increase the Trust's 2009 and 2010 average hedge prices. The cash outflow for
the nine month period ended September 30, 2008 was $34.5 million.
The rise in the distributions relates to the increases in the
distribution rate and number of trust units outstanding, resulting from the
acquisitions in the first quarter 2008 along with the two bought deal
financings which closed in September 2007 and January 2008.The following table provides a reconciliation of cash distributions:
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
($000), except per % %
unit amounts) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Accumulated cash
distributions,
beginning of
period 687,810 404,373 70 535,550 290,442 84
Cash distributions
declared to
unitholders(1) 86,247 63,206 36 238,507 177,137 35
-------------------------------------------------------------------------
Accumulated cash
distributions,
end of period 774,057 467,579 66 774,057 467,579 66
-------------------------------------------------------------------------
Accumulated cash
distributions per
unit, beginning
of period 10.89 8.46 29 9.66 7.26 33
Cash distributions
declared to
unitholders per
unit(1) 0.69 0.60 15 1.92 1.80 7
-------------------------------------------------------------------------
Accumulated cash
distributions
per unit, end of
period 11.58 9.06 28 11.58 9.06 28
-------------------------------------------------------------------------
(1) Cash distributions reflect the sum of the amounts declared monthly to
unitholders, including distributions under the DRIP and Premium DRIP
plans.For the third quarter and nine month period ended September 30, 2008,
cash flow from operating activities (including changes in non-cash working
capital) of $153.9 million and $459.3 million exceeded cash distributions of
$86.2 million and $238.5 million, respectively. This trend was consistent for
2007 and 2006.
Net income for the three month period ended September 30, 2008 of $497.8
million exceeded cash distributions of $86.2 million, primarily due to the
significant unrealized gain on derivatives of $418.2 million. Cash
distributions of $238.5 million for the nine month period ended September 30,
2008 exceeded the net income of $102.7 million. This is consistent with the
trend in distributions for 2007 and 2006. Net income includes significant
non-cash income or charges that do not impact the cash flow which in the third
quarter of 2008 were net $314.0 million of non-cash income and net $379.8
million of non-cash charges for the nine month period ended September 30,
2008. The non-cash fluctuations include changes in future income taxes due to
changes in the tax rates and tax rules, unrealized gains and losses on
derivatives and unit based compensation.
Crescent Point does not anticipate cash distributions will exceed cash
flow from operating activities however it is likely they will exceed net
income as noted above given the significant non-cash items that are recorded
such as future income taxes, DD&A, unit-based compensation and unrealized
gains (losses) on derivatives. Further, the cash flow from operating
activities can be significantly impacted by large fluctuations in working
capital that may vary quarter-to-quarter but level out over the period.
An objective of the Trust's distribution policy is to provide unitholders
with relatively stable and predictable monthly distributions. An additional
objective is to retain a portion of funds flow from operations to fund ongoing
development and optimization projects designed to enhance the sustainability
of the Trust's funds flow from operations. Although the Trust strives to
provide unitholders with stable and predictable funds flow from operations,
the percentage of funds flow from operations paid to unitholders each month
may vary according to a number of factors, including fluctuations in resource
prices, exchange rates and production rates, reserves growth, the size of
development drilling programs and the portion thereof funded from funds flow
from operations and the overall level of debt of the Trust. The actual amounts
of the distributions are at the discretion of the Board of Directors. In the
event that commodity prices are higher than anticipated and a cash surplus
develops, such surplus may be used to increase distributions, reduce debt
and/or increase the capital program.
The Trust has a strong balance sheet and a balanced three and a half year
derivative profile and is, therefore, well positioned to sustain distributions
over time as Crescent Point continues to exploit and develop its asset base
and actively identify and evaluate acquisition opportunities. As discussed
above, there are many factors impacting the Trust's ability to sustain
distributions. The Trust continues to monitor these factors in connection with
setting long term sustainable distribution levels.The following table provides a reconciliation of distributable cash:
-------------------------------------------------------------------------
Three months ended Nine months ended Year ended
September 30 September 30
2008 2007 2008 2007 2007 2006
-------------------------------------------------------------------------
Cash flow from
operating
activities 153,875 80,722 459,330 233,535 332,605 177,426
Net income
(loss) 497,815 18,410 102,691 58,181 (32,167) 68,947
Cash
distributions
paid or
payable 86,247 63,206 238,507 177,137 245,108 150,277
-------------------------------------------------------------------------
Excess of cash
flows from
operating
activities
over cash
distributions
paid 67,628 17,516 220,823 56,398 87,497 27,149
-------------------------------------------------------------------------
Excess
(shortfall)
of net income
(loss) over
cash
distributions
paid 411,568 (44,796) (135,816) (118,956) (277,275) (81,330)
-------------------------------------------------------------------------Long-Term Investments
During the first quarter of 2008, the Trust invested in Shelter Bay, a
private Bakken light oil growth company. At that time, the Trust also entered
into a Call Obligation Agreement with Shelter Bay in exchange for Special
Voting Shares. Pursuant to the agreement, the Trust committed to subscribe for
additional Class A Common Shares of Shelter Bay if so requested by Shelter Bay
for approximately $45.4 million. In connection with this capital commitment,
the Trust received 45.4 million Special Voting Shares. Other major investors
of Shelter Bay also entered into similar Call Obligation Agreements with
Shelter Bay. As a result, the Trust's equity interest would not change
significantly in connection with the Call Obligation Agreement.
The Trust accounts for its investment in Shelter Bay using the equity
method.
The Trust's initial investment of $76.3 million was comprised of 72.6
million Class A Common Shares and 3.5 million Non-Voting Common Shares, issued
for $1.00 per share.
During the second quarter of 2008, the Trust, pursuant to the Call
Obligation Agreement, invested a further $20.0 million in Shelter Bay in
return for an additional 20.0 million Class A Common Shares.
During the third quarter of 2008, Shelter Bay exercised its remaining
call rights under the Call Obligation Agreements. As a result the Trust
subscribed for approximately 25.4 million Class A Common Shares for $25.4
million in July 2008. This subscription satisfied in full the Trust's
commitment under the Call Obligation Agreement. On September 5, 2008, the
Trust exchanged with Shelter Bay 3.5 million Non-Voting Common Shares of
Shelter Bay for 3.5 million Class A Common Shares of Shelter Bay. At September
30, 2008 the Trust's equity interest was 19 percent.
Subsequent to the third quarter of 2008, the Trust and Shelter Bay
announced the closing of a $300.0 million private placement financing for
Shelter Bay. Crescent Point's participation in the private placement was $78.7
million which was financed through the Trust's existing credit facilities.
With the closing of the private placement, Crescent Point's aggregate
investment in Shelter Bay is approximately $200.3 million which equates to a
21 percent interest in Shelter Bay.Capital Expenditures
Major Capital AcquisitionsThere were no major acquisitions in the third quarter of 2008.
Major acquisitions for the nine month period ended September 30, 2008
included Pilot Energy Ltd. and the non-Bakken assets of Landex Petroleum Corp.
Pilot Energy Ltd.
On January 16, 2008, the Trust purchased all the issued and outstanding
shares of Pilot Energy Ltd., a publicly traded company with properties in the
Viewfield area of southeast Saskatchewan for total consideration of
approximately $78.5 million, including assumed bank debt and working capital
($93.3 million was allocated to property, plant and equipment). The purchase
was paid for through the issuance of approximately 2.6 million trust units and
was accounted for as a business combination using the purchase method of
accounting. The Trust owned 2.0 million shares of Pilot Energy Ltd. prior to
the closing which it purchased for $2.90 per share or $5.9 million in November
2007.
Non-Bakken Assets of Landex Petroleum Corp.
On March 26, 2008, the Trust closed the acquisition of the non-Bakken
assets of Landex Petroleum Corp. from Shelter Bay for consideration of
approximately $80.0 million ($81.4 million was allocated to property, plant
and equipment). The purchase was paid for with approximately 3.1 million trust
units and $5.0 million of cash from the Trust's existing bank line.
Minor Property Acquisitions and Dispositions
During the three months ended September 30, 2008, the Trust closed one
property acquisition for consideration of approximately $9.0 million ($10.0
million was allocated to property plant and equipment). The Trust also
recorded favorable purchase price adjustments on previously closed
acquisitions of $0.1 million.
During the nine months ended September 30, 2008, the Trust closed two
property acquisitions for $9.3 million ($10.0 million was allocated to
property, plant and equipment) and several property dispositions for net
consideration of approximately $28.7 million ($30.4 million was recorded as
reduction to property, plant and equipment). The Trust also recorded purchase
price adjustments of $2.5 million on previously closed acquisitions.Development Capital
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
% %
($000) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Capital
acquisitions
(net)(1) 8,908 20,777 (57) 141,556 660,029 (79)
Development
capital
expenditures 120,296 57,792 108 361,678 132,538 173
Capitalized
administration 2,204 1,239 78 8,396 3,119 169
Office equipment 431 680 (37) 1,001 2,277 (56)
-------------------------------------------------------------------------
Total 131,839 80,488 64 512,631 797,963 (36)
-------------------------------------------------------------------------
(1) Capital acquisitions represent total consideration for the
transactions including bank debt and working capital assumed.The Trust's revised capital program for 2008 is approximately $425.0
million, not including acquisitions. The Trust searches for opportunities that
align with strategic parameters and evaluates each prospect on a case-by-case
basis. The Trust's acquisitions are expected to be financed through bank debt
and new equity issuances where applicable within the federal government's Safe
Harbour Limits on equity issuance.
Goodwill
The goodwill balance of $68.4 million as at September 30, 2008 is
attributable to the corporate acquisitions of Tappit Resources Ltd., Capio
Petroleum Corporation and Bulldog Energy Inc. during the period 2003 through
2005.
Asset Retirement Obligation
The asset retirement obligation increased by $2.4 million during the
third quarter of 2008. The increase relates to liabilities of $1.5 million
recorded in respect of acquisitions and drilling. Accretion expense of $1.3
million was also recognized, however this was offset by actual expenditures
incurred in the quarter of $0.4 million.
During the nine month period ended September 30, 2008, the asset
retirement obligation increased $1.5 million primarily due to $7.1 million
recorded in respect of acquisitions and drilling, partially offset by
liabilities disposed of totaling $1.7 million. Accretion expense of $4.0
million was also recognized. Offsetting these increases were liabilities
settled of $2.0 million and $5.9 million from the Trust's adoption of the most
current reserve report and assumptions. The revision is primarily due to the
increased reserve lives in the Viewfield area resulting from new technology
enhancing their recoverability.
The reclamation fund increased $0.6 million during the third quarter of
2008. This increase relates to an increase in contributions of $1.0 million
offset by expenditures of $0.4 million. Contributions to the fund are $0.30
per barrel of production. The Board of Directors and management review the
adequacy of the fund annually and adjust contributions as necessary.
During the nine month period ended September 30, 2008, the reclamation
fund increased $1.4 million. The increase is primarily due to $4.0 million of
contributions offset by expenditures of $2.6 million.
Liquidity and Capital Resources
At September 30, 2008, the Trust had a syndicated credit facility with
ten banks and an operating credit facility with one Canadian chartered bank.
As at September 30, 2008, the Trust had bank debt of $723.6 million, leaving
unutilized borrowing capacity of $276.4 million.
As at September 30, 2008, Crescent Point was capitalized with 15 percent
net debt and 85 percent equity, a four percent change from December 31, 2007.
The Trust's net debt to funds flow from operations ratio at September 30, 2008
was 0.9 times (December 31, 2007 - 1.8 times). The Trust has focused on
reducing its bank indebtedness to achieve a net debt to cash flow ratio of
less than 1.0 times and will continue to focus on this through 2008. The
Trust's projected net debt to 12 month cash flow is 1.1 times.
In the third quarter of 2008, global financial markets entered into a
period of significant uncertainty marked by high profile bankruptcies of major
financial institutions, large increases in stock market volatility,
significant downward pressure on equities and overall tightening of credit
markets.
During this period, Crescent Point was successful in increasing its
credit facilities by $150 million and Shelter Bay raised $300 million of
equity in a private placement. The combined $450 million of financing
highlights the high quality nature of the asset bases and the robust economics
of the opportunities that lie ahead for both Crescent Point and Shelter Bay.
With the weakness in financial markets and the uncertainty over global
economic prospects, commodity prices have suffered significant declines since
the beginning of the third quarter. WTI prices peaked at nearly US$150 per
barrel in July before decreasing to levels in the US$60 range. NYMEX natural
gas prices have declined from the US$13 per mmbtu range in July to the US$6
range. Offsetting these declines has been a large decrease in the value of the
Canadian dollar, which had traded near par with the US dollar for most of the
year before falling to less than US$0.80. In Canadian dollar terms, WTI crude
is trading in the Cdn$80 per barrel range.
Crescent Point is well positioned to withstand the current market
uncertainty and to take advantage of acquisition opportunities. Crescent
Point's balance sheet is strong with projected 2009 net debt to 12 month cash
flow of 1.1 times and its 3 1/2 year risk management program provides cash
flow stability. The Trust's 10 year drilling inventory and current 140 well
fracture stimulation inventory provide long term sustainability and capital
investment flexibility at oil prices well below current levels.-------------------------------------------------------------------------
Capitalization Table
($000, except unit, per unit
and percent amounts) September 30, 2008 December 31, 2007
-------------------------------------------------------------------------
Bank debt 723,578 595,984
Working capital(1) (50,766) 54,104
-------------------------------------------------------------------------
Net debt(1) 672,812 605,088
Trust units outstanding 124,995,820 113,760,732
Market price at end of period
(per unit) 31.11 24.81
Market capitalization 3,888,620 2,822,404
-------------------------------------------------------------------------
Total capitalization 4,561,432 3,472,492
-------------------------------------------------------------------------
Net debt as a percentage of
total capitalization (%) 15 19
-------------------------------------------------------------------------
Annualized funds flow from operations 735,372 355,910
-------------------------------------------------------------------------
Net debt to funds flow from operations(2) 0.9 1.8
-------------------------------------------------------------------------
(1) Working capital and net debt include long-term investments and bank
indebtedness, but exclude the risk management liabilities and assets.
(2) The net debt reflects the financing of acquisitions, however the
funds flow from operations only reflects funds flow from operations
generated from the acquired properties since the closing dates of the
acquisitions.
Unitholders' Equity
At September 30, 2008, Crescent Point had 125.0 million trust units issued
and outstanding compared to 113.8 million trust units at December 31, 2007.
The increase by 11.2 million trust units relates primarily to the bought deal
financing and the acquisition of Pilot in January 2008, combined with the
issuance of units for a property acquisition in March 2008:
- The Trust and a syndicate of underwriters closed a bought deal equity
financing on January 8, 2008 pursuant to which the syndicate sold 5.2
million trust units at $24.25 per trust unit for gross proceeds of
$125.0 million.
- The Trust issued 2.6 million trust units to Pilot shareholders at a
price of $23.12 per trust unit on closing of the acquisition on
January 16, 2008.
- On March 26, 2008, the Trust issued 3.1 million trust units at $24.08
per unit in respect of the southeast Saskatchewan property
acquisition from Shelter Bay, which was completed in conjunction with
Shelter Bay's closing of the Landex acquisition.Crescent Point's total capitalization increased 31 percent to $4.6
billion at September 30, 2008 compared to $3.5 billion at December 31, 2007,
with the market value of the trust units representing 85 percent of the total
capitalization. The increase in capitalization is attributable to the increase
in the number of units outstanding along with a significant appreciation in
the unit trading price. During the third quarter of 2008, the Trust's units
appreciated significantly, trading in the range of $30.25 to $39.27 per unit,
with an average daily trading volume of 786,612 units.
Critical Accounting Estimates
The preparation of the Trust's financial statements requires management
to adopt accounting policies that involve the use of significant estimates and
assumptions. These estimates and assumptions are developed based on the best
available information and are believed by management to be reasonable under
the existing circumstances. New events or additional information may result in
the revision of these estimates over time. A summary of the significant
accounting policies used by Crescent Point can be found in Note 2 to the
December 31, 2007 consolidated financial statements.New Accounting Pronouncements
Accounting Changes in the Current Period
Financial Instruments
On January 1, 2008, the Trust adopted the following CICA Handbook
sections:
- Section 3862 "Financial Instruments - Disclosures" and Section 3863
"Financial Instruments - Presentation". The new disclosure standards
increase the Trust's disclosure regarding the nature and extent of
the risks associated with financial instruments and how those risks
are managed (see Note 13 to the unaudited interim consolidated
financial statements for the quarter ended September 30, 2008).
- Section 1535 "Capital Disclosures". The new standard requires the
Trust to disclose objectives, policies and processes for managing its
capital structure (see Note 9 to the unaudited interim consolidated
financial statements for the quarter ended September 30, 2008).Future Accounting Pronouncements
The CICA issued Section 3064, "Goodwill and Other Intangible Assets",
replacing Section 3062, "Goodwill and Other Intangible Assets" and Section
3450, "Research and Development Costs". Section 3064 establishes standards for
the recognition, measurement, presentation and disclosure of goodwill and
intangible assets subsequent to its initial recognition. Standards concerning
goodwill are unchanged from the standards included in the previous Section
3062. This standard is effective on January 1, 2009. The Trust does not expect
a material impact of this standard on its financial statements.
On February 13, 2008, the Accounting Standards Board confirmed that the
transition date to International Financial Reporting Standards ("IFRS") from
Canadian GAAP will be January 1, 2011 for publicly accountable enterprises. As
the Trust will be required to report its results in accordance with IFRS
starting in 2011, the Trust is assessing the potential impacts of this
changeover and is developing its implementation plan accordingly.
Internal Controls Update
Crescent Point is required to comply with Multilateral Instrument 52-109
"Certification of Disclosure in Issuers' Annual and Interim Filings". The 2008
certificate requires that the Trust disclose in the interim MD&A any changes
in the Trust's internal control over financial reporting that occurred during
the period that has materially affected, or is reasonably likely to materially
affect the Trust's internal control over financial reporting. The Trust
confirms that no such changes were made to the internal controls over
financial reporting during the third quarter of 2008.Summary of Quarterly Results
-------------------------------------------------------------------------
($000, except per 2008 2007
unit amounts) Q3 Q2 Q1 Q4
-------------------------------------------------------------------------
Revenues 365,748 360,685 275,979 214,748
Net income (loss)(1)(5)(6) 497,815 (353,660) (41,464) (90,348)
Net income (loss)
per unit(1)(5) 3.98 (2.83) (0.34) (0.80)
Net income (loss)
per unit - diluted(1)(5) 3.92 (2.83) (0.34) (0.80)
Cash flow from operating
activities(1)(6) 153,875 140,181 165,274 99,070
Cash flow from operating
activities per unit 1.23 1.12 1.37 0.88
Cash flow from operating
activities per unit
- diluted 1.22 1.11 1.35 0.87
Funds flow
from operations(1)(6) 183,843 142,990 155,664 112,572
Funds flow from operations
per unit 1.47 1.15 1.29 1.00
Funds flow from operations
per unit - diluted 1.45 1.13 1.28 0.99
Working capital(2) 50,766 14,973 20,157 (54,104)
Total assets 3,083,978 2,987,069 2,918,199 2,613,432
Total liabilities 1,535,646 1,856,144 1,358,676 1,196,429
Net debt(2) 672,812 635,731 565,475 650,088
Total long-term financial
liabilities 129,370 377,580 124,351 59,652
Weighted average trust units
- diluted (thousands)(3) 127,286 126,426 122,615 114,623
Capital expenditures(4) 131,839 131,135 249,657 506,231
Cash distributions 86,247 78,635 73,625 67,971
Cash distributions per unit 0.69 0.63 0.60 0.60
-------------------------------------------------------------------------
Summary of Quarterly Results
-------------------------------------------------------------------------
($000, except per 2007 2006
unit amounts) Q3 Q2 Q1 Q4
-------------------------------------------------------------------------
Revenues 164,368 144,179 128,880 100,960
Net income (loss)(1)(5)(6) 18,410 (117,773) 157,544 6,918
Net income (loss)
per unit(1)(5) 0.18 (1.17) 1.83 0.10
Net income (loss)
per unit - diluted(1)(5) 0.18 (1.17) 1.80 0.10
Cash flow from operating
activities(1)(6) 80,722 102,637 50,176 39,313
Cash flow from operating
activities per unit 0.79 1.02 0.58 0.58
Cash flow from operating
activities per unit
- diluted 0.78 1.01 0.58 0.56
Funds flow
from operations(1)(6) 92,215 78,248 72,875 43,843
Funds flow from operations
per unit 0.90 0.78 0.84 0.64
Funds flow from operations
per unit - diluted 0.89 0.77 0.84 0.63
Working capital(2) (9,908) (23,346) 13,044 26,533
Total assets 2,106,227 2,051,979 2,076,521 1,373,466
Total liabilities 555,233 656,693 534,299 467,086
Net debt(2) 208,554 353,416 340,612 227,905
Total long-term financial
liabilities - 7,286 16,107 11,697
Weighted average trust units
- diluted (thousands)(3) 104,074 101,681 87,537 69,764
Capital expenditures(4) 80,488 58,835 658,640 32,925
Cash distributions 63,206 60,320 53,611 41,322
Cash distributions per unit 0.60 0.60 0.60 0.60
-------------------------------------------------------------------------
(1) Per unit - diluted is calculated excluding the cash portion of unit -
based compensation. Net income per unit diluted is calculated using
the net income before non-controlling interest.
(2) Working capital and net debt include bank indebtedness and long-term
investments, but exclude the risk management liabilities and
assets.
(3) The trust units issuable on conversion of the exchangeable shares
reflect the weighted average exchangeable shares outstanding
converted at the exchange ratio in effect at the end of the period.
For the fourth quarter 2006 amounts, the exchangeable share ratio
applied is the one in effect for the October 27, 2006 redemption.
(4) Capital expenditures includes capital acquisitions. Capital
acquisitions represent total consideration for the transactions
including bank debt and working capital assumed. Prior period results
have been restated to conform to current period presentation.
(5) Net income for the first quarter of 2007 includes the $158.8 million
future income tax recovery resulting from the March 1, 2007
reorganization. Net income for the second quarter of 2007 includes
the $152.3 million future income tax expense resulting from the June
12, 2007 Bill C-52 Budget Implementation Act that was substantively
enacted.
(6) The second quarter of 2008's net loss, cash flow from operating
activities and funds flow from operations include a realized
derivative loss of $34.5 million for the crystallization of various
oil derivative contracts.Crescent Point's revenue has increased due to several corporate and
property acquisitions completed over the past two years and the Trust's
successful drilling program. Significant increases in the Cdn$ WTI benchmark
price and narrower corporate oil differentials also contributed to the
increase in revenues.
The overall growth of the Trust's asset base also contributed to the
general increase in funds flow from operations and cash flow from operating
activities. Higher market oil prices and narrower corporate oil differentials
also contributed to this trend.
Net income through 2006 and 2008 has fluctuated primarily due to
unrealized derivative gains and losses on oil and gas contracts, which
fluctuate with the changes in forward market conditions along with
fluctuations in the future income tax expense (recovery). The March 1, 2007
internal reorganization resulted in a $158.8 million future tax recovery in
the first quarter of 2007. Bill C-52 became substantively enacted on June 12,
2007, resulting in the future tax expense of $152.3 million in the second
quarter of 2007.
Capital expenditures fluctuated through this period as a result of timing
of acquisitions and the development drilling program. The general increase in
funds flow from operations and cash flow from operating activities throughout
the last eight quarters has allowed the Trust to maintain stable monthly cash
distributions over the past two years.Outlook
Crescent Point's 2008 guidance is as follows:
-------------------------------------------------------------------------
2008
Production
Oil and NGL (bbls/d) 32,000
Natural gas (mcf/d) 28,500
-------------------------------------------------------------------------
Total (boe/d) 36,750
-------------------------------------------------------------------------
Funds flow from operations ($000) 612
Funds flow from operations per unit - diluted ($) 4.88
Cash distributions per unit ($) 2.61
Payout ratio - per unit - diluted (%) 53
-------------------------------------------------------------------------
Capital expenditures ($000)(1) 425
Wells drilled, net 140
-------------------------------------------------------------------------
Pricing
Crude oil - WTI (US$/bbl) 102.25
Crude oil - WTI (Cdn$/bbl) 108.78
Natural gas - Corporate (Cdn$/mcf) 8.25
Exchange rate (US$/Cdn$) 0.94
-------------------------------------------------------------------------
(1) The projection of capital expenditures excludes acquisitions, which
are separately considered and evaluated.
Additional information relating to Crescent Point, including the Trust's
annual information form, is available on SEDAR at www.sedar.com.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
As at
(UNAUDITED) ($000) September 30, 2008 December 31, 2007
-------------------------------------------------------------------------
ASSETS
Current assets
Accounts receivable (Note 13) 163,520 102,800
Investments in marketable securities 1,923 1,385
Prepaids and deposits 3,836 2,218
Risk management asset (Note 13) 142 451
-------------------------------------------------------------------------
169,421 106,854
Long-term investment (Note 4) 122,287 6,386
Reclamation fund 3,837 2,436
Property, plant and equipment (Note 5) 2,720,083 2,429,406
Goodwill 68,350 68,350
-------------------------------------------------------------------------
Total assets 3,083,978 2,613,432
-------------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable and
accrued liabilities 212,051 144,141
Cash distributions payable 28,749 22,752
Bank indebtedness (Note 6) - 595,984
Risk management liability (Note 13) 116,202 63,819
-------------------------------------------------------------------------
357,002 826,696
Bank indebtedness (Note 6) 723,578 -
Asset retirement obligation (Note 7) 67,588 66,074
Risk management liability (Note 13) 129,370 59,652
Future income taxes 258,108 244,007
-------------------------------------------------------------------------
Total liabilities 1,535,646 1,196,429
-------------------------------------------------------------------------
UNITHOLDERS' EQUITY
Unitholders' capital (Notes 8 & 9) 2,085,578 1,826,423
Contributed surplus (Note 10) 23,076 15,086
Deficit (Note 11) (560,322) (424,506)
-------------------------------------------------------------------------
Total unitholders' equity 1,548,332 1,417,003
-------------------------------------------------------------------------
Total liabilities and
unitholders' equity 3,083,978 2,613,432
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE INCOME AND DEFICIT
-------------------------------------------------------------------------
Three months ended Nine months ended
(UNAUDITED) September 30 September 30
($000, except per unit amounts) 2008 2007 2008 2007
-------------------------------------------------------------------------
REVENUE
Oil and gas sales 365,748 164,368 1,002,412 437,427
Royalties (71,563) (29,853) (185,553) (79,620)
Derivatives
Realized gains (losses) (52,569) (2,973) (164,486) 1,390
Unrealized gains (losses)
(Note 13) 418,171 3,383 (122,410) 6,810
Equity and other income
(Note 4) 1,556 - 718 -
-------------------------------------------------------------------------
661,343 134,925 530,681 366,007
EXPENSES
Operating 33,173 22,859 89,732 66,726
Transportation 5,876 4,429 19,795 12,099
General and administrative 3,217 3,350 17,424 11,444
Unit-based compensation
(Note 10) 10,449 4,179 20,095 12,030
Interest on bank
indebtedness (Note 6) 8,514 4,727 23,784 13,698
Depletion, depreciation
and amortization 80,490 62,791 232,889 174,906
Accretion on asset
retirement obligation
(Note 7) 1,311 1,192 4,015 3,195
-------------------------------------------------------------------------
143,030 103,527 407,734 294,098
-------------------------------------------------------------------------
Income before taxes 518,313 31,398 122,947 71,909
Capital and other taxes 5,821 3,309 16,798 10,520
Future income tax expense 14,677 9,679 3,458 3,208
-------------------------------------------------------------------------
Net income and comprehensive
income for the period 497,815 18,410 102,691 58,181
-------------------------------------------------------------------------
Deficit, beginning of period (971,890) (221,391) (424,506) (148,699)
Change in accounting policy - - - 1,468
Cash distributions paid
or declared (86,247) (63,206) (238,507) (177,137)
-------------------------------------------------------------------------
Deficit, end of the period
(Note 11) (560,322) (266,187) (560,322) (266,187)
-------------------------------------------------------------------------
Net income per unit (Note 12)
Basic 3.98 0.18 0.83 0.60
Diluted 3.92 0.18 0.83 0.60
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
(UNAUDITED) ($000) 2008 2007 2008 2007
-------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income for the period 497,815 18,410 102,691 58,181
Items not affecting cash
Equity and other income
(Note 4) (1,556) - (718) -
Future income taxes 14,677 9,679 3,458 3,208
Unit-based compensation
(Note 10) 9,277 3,526 17,752 10,592
Depletion, depreciation
and amortization 80,490 62,791 232,889 174,906
Accretion on asset
retirement obligation
(Note 7) 1,311 1,192 4,015 3,195
Realized gain on sale
of investment - - - (1,402)
Unrealized (gains) losses
on derivatives (Note 13) (418,171) (3,383) 122,410 (6,810)
Unrealized loss on
investment - - - 1,468
Asset retirement
expenditures (Note 7) (364) (287) (1,943) (976)
Change in non-cash
working capital
Accounts receivable (11,316) (14,285) (49,286) 5,691
Prepaid expenses and
deposits 127 1,146 (1,618) 1,928
Accounts payable (18,415) 1,933 29,680 (16,446)
-------------------------------------------------------------------------
153,875 80,722 459,330 233,535
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Development capital and
other expenditures (122,931) (59,711) (367,575) (137,934)
Capital acquisitions, net
(Note 5) (8,908) (2,108) (9,828) (57,243)
Proceeds on sale of
marketable securities - - 17,796 1,573
Reclamation fund net
contributions (587) (348) (1,401) (823)
Long-term investment
(Note 4) (25,330) (16,606) (121,633) (16,606)
Change in non-cash
working capital
Accounts receivable (5,741) (2,921) (6,880) (7,645)
Accounts payable 26,396 17,202 35,354 37,772
-------------------------------------------------------------------------
(137,101) (64,492) (454,167) (180,906)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of trust units,
net of issue costs (3,443) 184,851 112,778 233,384
Restricted unit vests - - - (833)
Increase (decrease) in
bank indebtedness 72,874 (137,691) 114,569 (109,810)
Cash distributions (86,247) (63,206) (238,507) (177,137)
Change in non-cash
working capital
Cash distributions
payable 42 1,040 5,997 3,314
-------------------------------------------------------------------------
(16,774) (15,006) (5,163) (51,082)
-------------------------------------------------------------------------
INCREASE IN CASH - 1,224 - 1,547
CASH AT BEGINNING OF PERIOD - 528 - 205
-------------------------------------------------------------------------
CASH AT END OF PERIOD - 1,752 - 1,752
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Supplementary Information:
Cash capital taxes paid 7,800 3,900 20,619 11,360
Cash interest paid 8,672 2,471 22,123 13,072
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
These interim consolidated financial statements of Crescent Point Energy
Trust ("Crescent Point") or ("the Trust") have been prepared by
management in accordance with Canadian generally accepted accounting
principles and follow the same accounting policies as the most recent
annual audited financial statements, except as described below. The
specific accounting policies used are described in the annual
consolidated financial statements appearing on pages 50 through 55 of the
Trust's 2007 Annual Report. All amounts reported in these statements are
in Canadian dollars.
2. CHANGES IN ACCOUNTING POLICIES
On January 1, 2008, the Trust adopted the following Canadian Institute of
Chartered Accountants ("CICA") Handbook sections:
- Section 3862 "Financial Instruments - Disclosures" and Section 3863
"Financial Instruments - Presentation". The new disclosure standards
increase the Trust's disclosure regarding the nature and extent of
the risks associated with financial instruments and how those risks
are managed (see Note 13).
- Section 1535 "Capital Disclosures". The new standard requires the
Trust to disclose objectives, policies and processes for managing its
capital structure (see Note 9).
3. FUTURE ACCOUNTING PRONOUNCEMENTS
The CICA issued Section 3064, "Goodwill and Other Intangible Assets",
replacing Section 3062, "Goodwill and Other Intangible Assets" and
Section 3450, "Research and Development Costs". Section 3064 establishes
standards for the recognition, measurement, presentation and disclosure
of goodwill and intangible assets subsequent to its initial recognition.
Standards concerning goodwill are unchanged from the standards included
in the previous Section 3062. This standard is effective on January 1,
2009. The Trust does not expect a material impact of this standard on its
financial statements.
On February 13, 2008, the Accounting Standards Board confirmed that the
transition date to International Financial Reporting Standards ("IFRS")
from Canadian GAAP will be January 1, 2011 for publicly accountable
enterprises. As the Trust will be required to report its results in
accordance with IFRS starting in 2011, the Trust is assessing the
potential impacts of this changeover and is developing its implementation
plan accordingly.
4. LONG TERM INVESTMENT
During the first quarter of 2008, the Trust invested in Shelter Bay
Energy Inc. ("Shelter Bay"), a private light oil company. The Trust's
initial $76.3 million investment was comprised of 72.6 million Class A
Common Shares and 3.5 million Non-Voting Common Shares issued for $1.00
per share and representing an interest of 17 percent.
During the second quarter of 2008, the Trust invested a further
$20.0 million in Shelter Bay in return for an additional 20.0 million
Class A Common Shares.
In the third quarter of 2008, the Trust invested an additional
$25.4 million in Shelter Bay for a further 25.4 million Class A Common
Shares. On September 5, 2008, the Trust exchanged with Shelter Bay
3.5 million Non-Voting Common Shares of Shelter Bay for 3.5 million Class
A Common Shares of Shelter Bay. At September 30, 2008, the Trust's
investment of $122.3 million consists of 121.5 million Class A Common
Shares, that represents an interest of 19 percent, plus the equity
earnings of $0.7 million.
Variable Interest Entity
Shelter Bay is considered a variable interest entity under Accounting
Guideline 15. However, the Trust is not the primary beneficiary of this
variable interest entity, and, accordingly, the Trust accounts for its
investment in Shelter Bay using the equity accounting method. Therefore,
the Trust has recorded its share of Shelter Bay's net income (loss) as an
increase (decrease) to the Trust's net income and as an increase
(decrease) to the cost of its investment. The Trust's maximum exposure to
loss as a result of its involvement in Shelter Bay is approximately
$122.3 million, which includes the carrying value of the Trust's
investment.
The following table reconciles the long term investment:
-------------------------------------------------------------------------
($000)
-------------------------------------------------------------------------
Balance, January 1, 2008 -
Investment 121,633
Share of net income and comprehensive income for the period 654
-------------------------------------------------------------------------
Balance, September 30, 2008 122,287
-------------------------------------------------------------------------
Related Party Transactions
Management and Technical Services Agreement - The Trust entered into a
Management & Technical Services Agreement with Shelter Bay, effective
January 11, 2008. Crescent Point is responsible for managing,
administering and operating the assets and business of Shelter Bay. The
services are provided in exchange for a monthly management fee. Crescent
Point billed management fees of $0.6 million to Shelter Bay for the third
quarter of 2008, and $1.7 million for the nine months ended September 30,
2008.
Farm-Out Agreement - Effective January 11, 2008, the Trust entered into a
farm-out agreement with Shelter Bay. Under the agreement, Shelter Bay has
the right to farm-in on 22 net sections of Viewfield Bakken lands owned
by the Trust. Shelter Bay is responsible for paying 100 percent of the
capital costs and earns a 50 percent interest in production from the
property, while the Trust retains the other 50 percent production
interest.
In the first quarter of 2008, there were two wells drilled by Crescent
Point immediately prior to the effective date of the farm-out agreement,
and pursuant to the agreement, these wells were sold by Crescent Point to
Shelter Bay in exchange for a reimbursement of capital costs, which
totaled $3.6 million. As this transaction was not in the normal course of
operations, the disposition of the wells was recorded at the carrying
amount.
Farm-Out Note - During the first quarter of 2008, as Shelter Bay
commenced operations, the Trust entered into a farm-in note with Shelter
Bay to finance Shelter Bay's capital activities. The principal amount of
the note was $23.5 million and interest on the note was equivalent to the
Canadian Chartered Bank Prime Rate plus 2 percent. The principal amount
of the note was re-paid on March 26, 2008, subsequent to Shelter Bay's
closing of a private placement. Interest of $0.2 million was charged by
Crescent Point during the first quarter and collected at the end of
April.
Capital Commitment - Pursuant to Shelter Bay's private placement, the
Trust entered into a Call Obligation Agreement with Shelter Bay in
association with its subscription for Special Voting Shares. Pursuant to
the agreement, the Trust committed to subscribe for additional Class A
Common Shares of Shelter Bay for approximately $45.4 million. In exchange
for this capital commitment, the Trust received 45.4 million Special
Voting Shares. Other major investors of Shelter Bay also entered into
similar Call Obligation Agreements with Shelter Bay and may, at Shelter
Bay's discretion be required to subscribe for additional shares of
Shelter Bay. As a result, the Trust's equity interest would not change
significantly in connection with the Call Obligation Agreement.
On May 15, 2008 Shelter Bay exercised in part its call rights under the
Call Obligation Agreements. As a result the Trust subscribed for
20.0 million Class A Common Shares of Shelter Bay for $20.0 million.
On July 31, 2008 Shelter Bay exercised its remaining call rights under
the Call Obligation Agreements. As a result the Trust subscribed for
approximately 25.4 million Class A Common Shares for $25.4 million. This
subscription satisfied in full the Trust's commitment under the Call
Obligation Agreement.
On September 5, 2008 the Trust exchanged with Shelter Bay 3.5 million
Non-Voting Common Shares of Shelter Bay for 3.5 million Class A Common
Shares of Shelter Bay. At September 30, 2008 the Trust's equity interest
was 19 percent.
Subsequent to the third quarter of 2008, the Trust and Shelter Bay
announced the closing of a $300.0 million private placement financing for
Shelter Bay. Crescent Point's participation in the private placement was
$78.7 million which was financed through the Trust's existing credit
facilities. With the closing of the private placement, Crescent Point's
aggregate investment in Shelter Bay is approximately $200.3 million which
equates to a 21 percent interest in Shelter Bay.
Amounts Owing From / Due To - At September 30, 2008, the Trust had
$4.2 million receivable from Shelter Bay for management fees and
operating activity paid for by the Trust on Shelter Bay's behalf. These
receivables were collected by the Trust at the end of October.
Property Acquisition & Trust Unit Issuance - In conjunction with the
closing of Shelter Bay's acquisition of Landex Petroleum Corp. ("Landex")
on March 26, 2008, the Trust issued 3.1 million trust units valued at
$75 million and cash of $5 million to Shelter Bay in exchange for an
$80 million note. The Trust subsequently completed a Saskatchewan
property acquisition from Shelter Bay for total consideration of
$80 million, in exchange for settlement of the note.
The trust unit issuance was recorded at $75 million as this was
equivalent to the fair value of the consideration received. The property
acquisition was recorded at the exchange amount of $80 million.
Property Disposition - On March 26, 2008, the Trust disposed of
undeveloped land to Shelter Bay for cash consideration of $31.3 million.
The transaction was recorded at the exchange amount.
Painted Pony Petroleum Ltd. ("Painted Pony") Share Disposition - The
Trust entered into an agreement with Shelter Bay to dispose of the
Painted Pony shares for $17.8 million. The transaction was recorded at
the exchange amount.
5. CAPITAL ACQUISITIONS AND DISPOSITIONS
a) Major acquisitions
There were no major acquisitions in the third quarter of 2008.
Major acquisitions in the nine month period ended September 30, 2008
included Pilot Energy Ltd. and the non-Bakken assets of Landex Petroleum
Corp.
Pilot Energy Ltd.
On January 16, 2008, the Trust purchased all the issued and outstanding
shares of Pilot Energy Ltd., a publicly traded company with properties in
the Viewfield area of southeast Saskatchewan for total consideration of
approximately $78.5 million, including assumed bank debt and working
capital ($93.3 million was allocated to property, plant and equipment).
The purchase was paid for through the issuance of approximately
2.6 million trust units and was accounted for as a business combination
using the purchase method of accounting. The Trust owned 2.0 million
shares of Pilot Energy Ltd. prior to the closing which it purchased for
$2.90 per share or $5.9 million in November 2007.
-------------------------------------------------------------------------
($000)
-------------------------------------------------------------------------
Net assets acquired
Working capital 1,678
Property, plant and equipment 93,310
Bank debt (13,025)
Asset retirement obligation (3,341)
Future income taxes (11,494)
-------------------------------------------------------------------------
Total net assets acquired 67,128
-------------------------------------------------------------------------
Consideration
Cash 5,912
Trust units issued (2,628,269 trust units) 60,766
Acquisition costs 450
-------------------------------------------------------------------------
Total purchase price 67,128
-------------------------------------------------------------------------
Non-Bakken Assets of Landex Petroleum Corp.
On March 26, 2008, the Trust closed the acquisition of the non-Bakken
assets of Landex Petroleum Corp. from Shelter Bay Energy Inc. for
consideration of approximately $80.0 million ($81.4 million was allocated
to property, plant and equipment). The purchase was paid for with
approximately 3.1 million trust units and $5.0 million of cash from the
Trust's existing bank line. See Note 4 for further disclosures regarding
the property acquisition.
b) Minor Property Acquisitions and Dispositions
During the three months ended September 30, 2008, the Trust closed one
property acquisition for consideration of approximately $9.0 million
($10.0 million was allocated to property plant and equipment). The Trust
also recorded favorable purchase price adjustments on previously closed
acquisitions of $0.1 million.
During the nine months ended September 30, 2008, the Trust closed two
property acquisitions for $9.3 million ($10.0 million was allocated to
property, plant and equipment) and several property dispositions for net
consideration of approximately $28.7 million ($30.4 million was recorded
as reduction to property, plant and equipment). The Trust also recorded
purchase price adjustments of $2.5 million on previously closed
acquisitions.
6. BANK INDEBTEDNESS
The Trust has a syndicated credit facility with ten banks and an
operating credit facility with one Canadian chartered bank. The amount
available under the combined credit facility was increased from
$800.0 million to $1.0 billion in May 2008. Refer to subsequent Event
Note 14(b) for details of a further increase subsequent to the end of
this quarter. The Trust has letters of credit in the amount of
$0.4 million outstanding at September 30, 2008.
The credit facilities bear interest at the prime rate plus a margin based
on a sliding scale ratio of the Trust's debt to funds flow from
operations. The Trust also manages its debt facility through a
combination of banker's acceptances and interest rate swaps. The credit
facility is secured by the oil and gas assets owned by the Trust's wholly
owned subsidiaries. The facility has a maturity date of May 31, 2010.
7. ASSET RETIREMENT OBLIGATION
The following table reconciles the asset retirement obligation:
-------------------------------------------------------------------------
($000)
-------------------------------------------------------------------------
Asset retirement obligation, January 1, 2008 66,074
Liabilities incurred 1,320
Liabilities acquired through capital acquisitions 5,749
Liabilities disposed through capital dispositions (1,680)
Liabilities settled (1,943)
Changes in prior year estimates (5,947)
Accretion expense 4,015
-------------------------------------------------------------------------
Asset retirement obligation, September 30, 2008 67,588
-------------------------------------------------------------------------
8. UNITHOLDERS' CAPITAL
On January 8, 2008, the Trust and a syndicate of underwriters closed a
bought deal equity financing pursuant to which the syndicate sold
5,155,000 trust units for gross proceeds of $125.0 million ($24.25 per
trust unit).
-------------------------------------------------------------------------
Number of Amount
trust units ($000)
-------------------------------------------------------------------------
Trust units, January 1, 2008 113,760,732 1,873,523
Issued for cash 5,155,000 125,009
Issued on capital acquisitions 5,742,887 135,766
Issued on vesting of restricted units(1) 337,201 4,455
-------------------------------------------------------------------------
Trust units, September 30, 2008 124,995,820 2,138,753
-------------------------------------------------------------------------
Cumulative unit issue costs - (53,175)
-------------------------------------------------------------------------
Total unitholders' capital, September 30, 2008 124,995,820 2,085,578
-------------------------------------------------------------------------
(1) The amount of trust units issued on vesting of restricted units is
net of employee withholding taxes.
9. CAPITAL MANAGEMENT
The Trust's capital structure is comprised of unitholders' equity, bank
debt, cash and working capital. The balance of each of these items is as
follows:
-------------------------------------------------------------------------
September 30, December 31,
($000) 2008 2007
-------------------------------------------------------------------------
Bank debt 723,578 595,984
Working capital(1) (50,766) 54,104
-------------------------------------------------------------------------
Net debt 672,812 650,088
Unitholders' equity 1,548,332 1,417,003
-------------------------------------------------------------------------
Total capitalization 2,221,144 2,067,091
-------------------------------------------------------------------------
(1) Working capital is calculated as current liabilities less current
assets, including long term investments and excluding risk management
liabilities and assets.
The Trust's objective for managing capital is to maintain a strong
balance sheet and capital base to provide financial flexibility,
stability to distributions and to position the Trust for future
development of the business. Ultimately, the Trust strives to maximize
long-term unitholder value by ensuring the Trust has the financing
capacity to fund projects that are expected to add value to unitholders
and distribute any excess cash to unitholders that is not required for
financing projects.
The Trust manages and monitors its capital structure and short term
financing requirements using a non-GAAP measure, the ratio of net debt to
funds flow from operations. Net debt is calculated as current liabilities
plus bank indebtedness less current assets, including long term
investments and excluding risk management liabilities and assets. Funds
flow from operations is calculated as cash flow from operating activities
before changes in non-cash working capital and asset retirement
expenditures. The Trust's objective is to maintain a net debt to funds
flow from operations ratio of less than 1.0 times. This metric is used to
measure the Trust's overall debt position and measure the strength of the
Trust's balance sheet. The Trust monitors this ratio and uses this as a
key measure in making decisions regarding financing, capital spending and
distribution levels.
The Trust strives to provide stability to its distributions over time by
managing risks associated with the oil and gas industry. To accomplish
this, the Trust maintains a conservative balance sheet with significant
unutilized lines of credit and actively hedges commodity prices using a
three and a half year risk management program and hedging up to
65 percent of after royalty volumes using a portfolio of swaps, collars
and put option instruments.
Crescent Point is subject to certain financial covenants in its credit
facility agreements and is in compliance with all financial covenants as
of September 30, 2008.
The Trust's ability to raise new equity will be limited by the Safe
Harbour Limit guidelines as announced by the Federal Government. The
Federal Government's decision to tax income trusts has created
uncertainty in the capital markets regarding the future of the trust
sector. However, Crescent Point believes that it has sufficient capital
resources to meet its obligations given the Trust's significant
unutilized borrowing capacity available and its prior success raising new
equity within the guidelines as demonstrated from 2006 through early
2008.
10. RESTRICTED UNIT BONUS PLAN
A summary of the changes in the restricted units outstanding under the
plan is as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Restricted units, January 1, 2008 1,486,050
Granted 1,316,774
Exercised (498,927)
Forfeited (12,060)
-------------------------------------------------------------------------
Restricted units, September 30, 2008 2,291,837
-------------------------------------------------------------------------
A summary of the changes in the contributed surplus is as follows:
-------------------------------------------------------------------------
($000)
-------------------------------------------------------------------------
Contributed surplus, January 1, 2008 15,086
Unit-based compensation 17,866
Exercised restricted units (9,762)
Forfeited restricted units (114)
-------------------------------------------------------------------------
Contributed surplus, September 30, 2008 23,076
-------------------------------------------------------------------------
On June 23, 2008, the Board of Directors approved the issuance effective
July 1, 2008 of 551,622 restricted units to employees of the Trust in
conjunction with a special bonus award to recognize their efforts
contributing to the successful growth and net asset value appreciation of
the Trust in the past two and a half years.
11. DEFICIT
The deficit balance is composed of the following items:
-------------------------------------------------------------------------
($000)
-------------------------------------------------------------------------
Accumulated earnings 213,735
Accumulated cash distributions (774,057)
-------------------------------------------------------------------------
Deficit (560,322)
-------------------------------------------------------------------------
The Trust has historically paid cash distributions in excess of
accumulated earnings as cash distributions are based on cash flow from
operating activities before changes in non-cash working capital generated
in the current period while accumulated earnings are based on net income.
12. PER TRUST UNIT AMOUNTS
The following table summarizes the weighted average trust units used in
calculating net income per trust unit:
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
-------------------------------------------------------------------------
Weighted average trust
units 124,993,916 102,669,333 123,624,164 96,469,405
Dilutive impact of
restricted units 2,291,837 1,404,420 1,824,772 1,355,073
-------------------------------------------------------------------------
Dilutive trust units 127,285,753 104,073,753 125,448,936 97,824,478
-------------------------------------------------------------------------
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Trust's financial assets and liabilities are comprised of cash,
accounts receivable, investments in marketable securities, the
reclamation fund, risk management assets and liabilities, accounts
payable and accrued liabilities, cash distributions payable and bank
indebtedness. Risk management assets and liabilities arise from the use
of derivatives. Discussions of risks associated with financial assets and
liabilities, fair values of financial assets and liabilities and
summarized information related to risk management positions are detailed
below:
a) Risks Associated with Financial Assets and Liabilities
The Trust is exposed to financial risks from its financial assets and
liabilities. The financial risks include market risk relating to
commodity prices, interest rates and foreign exchange rates as well as
credit and liquidity risk.
Market Risk
Market risk is the risk that the fair value or future cash flows of a
derivative will fluctuate because of changes in market prices. Market
risk comprised of commodity price risk, interest rate risk and foreign
exchange risk is discussed below.
Commodity Price Risk
The Trust is exposed to commodity price risk on crude oil and natural gas
revenues as well as power on electricity consumption. As a means to
mitigate the exposure to commodity price volatility, the Trust has
entered into various derivative agreements. The use of derivative
instruments is governed under formal policies and is subject to limits
established by the Board of Directors of Crescent Point Resources Inc.,
the administrator of the Trust.
Crude Oil - To partially mitigate exposure to the crude oil commodity
price risk, the Trust enters into option contracts and swaps, which
manage the Cdn$ WTI price fluctuations.
Natural gas - The Trust has partially mitigated the natural gas commodity
price risk by entering into AECO natural gas collars, which manage the
AECO natural gas price fluctuations.
Power - To manage the Trust's exposure to electricity price changes, the
Trust has entered into swaps and fixed price physical delivery contracts
which fix the power price.
Interest Rate Risk
The Trust is exposed to interest rate risk on bank indebtedness to the
extent of changes in the prime interest rate. Crescent Point partially
mitigates its exposure to interest rate changes by entering into both
interest rate swap and bankers acceptance transactions as a means of
managing the debt portfolio.
At September 30, 2008, a one percent increase or decrease in the interest
rate on floating rate debt and interest rate swaps would have amounted to
a $3.4 million impact to net income for the nine month period ended
September 30, 2008. At September 30, 2008, the Trust's outstanding
derivative instruments utilized for interest rate management activities
were in an unrealized loss position of $3.3 million.
Foreign Exchange Risk
Fluctuations in the exchange rates between the U.S. and Canadian dollar
can affect the Trust's reported results. Crescent Point's functional and
reporting currency is Canadian dollars. To partially mitigate this risk
the Trust has fixed crude oil contracts to settle in Cdn$ WTI.
Credit Risk
Credit risk is the risk that one party to a financial instrument will
cause a financial loss for the other party by failing to discharge an
obligation. A substantial portion of the Trust's accounts receivable are
with customers in the oil and gas industry and are subject to normal
industry credit risks. The Trust monitors the creditworthiness and
concentration of credit with customers of its physical oil and gas sales.
The Trust is authorized to transact derivative contracts with
counterparties rated A (or equivalent) or better, based on the lowest
rating of the three ratings providers. Should one of the Trust's counter
parties be downgraded below the A rating limit, the Chief Financial
Officer will advise the Audit Committee and provide recommendations to
minimize the Trust's credit risk to that counterparty. The maximum credit
exposure associated with accounts receivable and risk management assets
is the total carrying value and the maximum exposure associated with the
derivative instruments approximates their fair value.
On July 23, 2008, the Trust announced that it has a potential exposure to
SemCanada Crude Company ("SemCanada"), a Canadian subsidiary of SemGroup,
L.P. ("SemGroup"), relating to the marketing of a portion of the Trust's
physical crude oil and liquids production. The contract pertaining to the
majority of the production volumes purchased by SemCanada was previously
terminated and does not represent an ongoing exposure for the Trust.
SemGroup filed a voluntary petition for reorganization under Chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware and SemCanada also filed for creditor protection in
Canada under The Companies' Creditors Arrangement Act. SemGroup listed
assets of $6.14 billion and liabilities of $7.53 billion in its US
bankruptcy filing.
Crescent Point's exposure is listed in SemGroup's US bankruptcy filing as
$42.5 million based on SemGroup's forecasts of prices and production
volumes. The Trust's actual exposure is closer to $30 million based on
confirmed production volumes and contract prices. As of this date, the
Trust is not able to quantify the portion, if any, of the exposure that
will be collected, and as a result a provision has not been recorded.
Liquidity Risk
Liquidity risk is the risk that the Trust will encounter difficulty in
meeting obligations associated with financial liabilities. The Trust
manages its liquidity risk through cash and debt management. As disclosed
in Note 9, Crescent Point targets a net debt to funds flow from
operations ratio of less than 1.0 times.
In managing liquidity risk, the Trust has access to a wide range of
funding at competitive rates through capital markets and banks. At
September 30, 2008, the Trust had available unused borrowing capacity of
$276.4 million. The Trust believes it has sufficient funding to meet
foreseeable borrowing requirements.
The timing of cash outflows relating to financial liabilities is outlined
in the table below:
-------------------------------------------------------------------------
1 year 2 years 3 years Total
-------------------------------------------------------------------------
Accounts payable and accrued
liabilities 212,051 - - 212,051
Cash distribution payable 28,749 - - 28,749
Risk management liabilities 116,202 97,952 31,418 245,572
Bank indebtedness - 723,578 - 723,578
-------------------------------------------------------------------------
Included in Crescent Point's bank indebtedness of $723.6 million at
September 30, 2008 are obligations of $650.0 million of bankers'
acceptances, obligations of $77.6 million for borrowings under the
operating and syndicated prime loans, partially offset by prepaid
interest on banker's acceptances of 4.0 million. These amounts are fully
supported and management expects that they will continue to be supported
by revolving credit and loan facilities that have no repayment
requirements other than interest.
In the third quarter of 2008, global financial markets entered into a
period of significant uncertainty marked by high profile bankruptcies of
major financial institutions, large increases in stock market volatility,
significant downward pressure on equities and overall tightening of
credit markets.
During this period, Crescent Point was successful in increasing its
credit facilities by $150 million and Shelter Bay raised $300 million of
equity in a private placement. The combined $450 million of financing
highlights the high quality nature of the asset bases and the robust
economics of the opportunities that lie ahead for both Crescent Point and
Shelter Bay.
With the weakness in financial markets and the uncertainty over global
economic prospects, commodity prices have suffered significant declines
since the beginning of the third quarter. WTI prices peaked at nearly
US$150 per barrel in July before decreasing to levels in the US$60 range.
NYMEX natural gas prices have declined from the US$13 per mmbtu range in
July to the US$6 range. Offsetting these declines has been a large
decrease in the value of the Canadian dollar, which had traded near par
with the US dollar for most of the year before falling to less than
US$0.80. In Canadian dollar terms, WTI crude is trading in the Cdn$80 per
barrel range.
Crescent Point is well positioned to withstand the current market
uncertainty and to take advantage of acquisition opportunities. Crescent
Point's balance sheet is strong with projected 2009 net debt to 12 month
cash flow of 1.1 times and its 3 1/2 year risk management program
provides cash flow stability. The Trust's 10 year drilling inventory and
current 140 well fracture stimulation inventory provide long term
sustainability and capital investment flexibility at oil prices well
below current levels.
b) Fair Value of Financial Assets and Liabilities
The fair values of cash, accounts receivable, the reclamation fund,
accounts payable and accrued liabilities, cash distributions payable and
bank indebtedness approximates their carrying amounts due to their short-
term nature and floating interest rate on debt.
Risk management assets and liabilities and investments in marketable
securities are recorded at their estimated fair value based on the mark-
to-market method of accounting, using market forecasts and pricing.
The following is a summary of the fair value of financial assets and
liabilities:
-------------------------------------------------------------------------
As at As at
September 30, December 31,
2008 2007
Fair Value Fair Value
-------------------------------------------------------------------------
Financial Assets
Held-for-Trading
Risk management assets(1) 142 451
Investments in marketable securities 1,923 1,385
Long term investments(2) - 6,386
Loans and Receivables
Accounts receivable 163,520 102,800
Financial Liabilities
Held-for-Trading
Risk management liabilities(1) 245,572 123,471
Other Financial Liabilities
Accounts payable and accrued liabilities 212,051 144,141
Cash distribution payable 28,749 22,752
Bank debt 723,578 595,984
-------------------------------------------------------------------------
(1) Including current portion.
(2) Excluding equity investment.
c) Risk Management Assets and Liabilities
The Trust entered into fixed price oil, gas, power and interest rate
contracts to manage its exposure to fluctuations in the price of crude
oil, gas, power, and interest on debt.
The following is a summary of the derivative contracts in place as at
September 30, 2008:
-------------------------------------------------------------------------
Financial WTI Crude Oil Contracts - Canadian Dollar(1)
Average Average
Average Collar Collar Average Average
Swap Sold Call Bought Bought Put
Volume Price Price Put Price Put Price Premium
Term (bbls/d) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/bbl)
-------------------------------------------------------------------------
2008
October -
December 16,750 78.86 88.73 73.27 72.58 (6.66)
2009 16,000 83.82 95.48 76.24 70.46 (6.03)
2010 12,750 85.17 96.35 79.74 72.90 (4.51)
2011 7,870 106.05 124.69 96.36 - -
-------------------------------------------------------------------------
(1) The volumes and prices reported are the weighted average volumes and
prices for the period.
-------------------------------------------------------------------------
Financial AECO Natural Gas Contracts - Canadian Dollar
Average Average
Bought Sold Call
Volume Put Price Price
Term (GJ/d) ($Cdn/GJ) ($Cdn/GJ)
-------------------------------------------------------------------------
2008 October 2,000 6.75 7.75
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial Interest Rate Contracts - Canadian Dollar
Notional Fixed
Principal Annual
Term Contract ($Cdn) Rate (%)
-------------------------------------------------------------------------
October 2008 - February 2009 Swap 50,000,000 4.37
October 2008 - May 2009 Swap 75,000,000 3.16
October 2008 - November 2010 Swap 75,000,000 4.35
October 2008 - June 2011 Swap 75,000,000 3.89
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial Power Contract - Canadian Dollar
Volume Fixed Rate
Term Contract (MW/h) ($Cdn/MW/h)
-------------------------------------------------------------------------
October 2008 - December 2008 Swap 3.0 63.25
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Physical Power Contracts - Canadian Dollar
Volume Fixed Rate
Term Contract (MW/h) ($Cdn/MW/h)
-------------------------------------------------------------------------
October 2008 - December 2009 Swap 1.0 82.45
January 2009 - December 2009 Swap 3.0 81.25
January 2010 - December 2010 Swap 3.0 80.75
-------------------------------------------------------------------------
The physical contracts have not been marked-to-market as the power
acquired is for the Trust's own use. The unrealized loss on the physical
contracts at September 30, 2008 is $0.3 million.
The following table reconciles the movement in the fair value of the
Trust's commodity, power and interest rate contracts:
-------------------------------------------------------------------------
($000)
-------------------------------------------------------------------------
Risk management asset, January 1, 2008 451
Unrealized mark-to-market loss (309)
-------------------------------------------------------------------------
Risk management asset, September 30, 2008 142
Less: current risk management asset, September 30, 2008 (142)
-------------------------------------------------------------------------
Long term risk management asset, September 30, 2008 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Risk management liability, January 1, 2008 123,471
Unrealized mark-to-market loss 122,101
-------------------------------------------------------------------------
Risk management liability, September 30, 2008 245,572
Less: current risk management liability, September 30, 2008 (116,202)
-------------------------------------------------------------------------
Long term risk management liability, September 30, 2008 129,370
-------------------------------------------------------------------------
Commodity Price Sensitivities on Derivatives
The following table summarizes the sensitivity of the fair value of the
Trust's risk management positions as at September 30, 2008 to
fluctuations in commodity prices, with all other variables held constant.
When assessing the potential impact of these commodity price changes, the
Trust believes 10 percent volatility is a reasonable measure.
Fluctuations in commodity prices potentially could have resulted in
unrealized gains (losses) impacting net income as follows:
-------------------------------------------------------------------------
Impact on Net Income
Three and Nine Months Ended
($000) September 30, 2008
-------------------------------------------------------------------------
Increase 10% Decrease 10%
-------------------------------------------------------------------------
Crude oil price (123,919) 123,874
-------------------------------------------------------------------------
Natural gas price - -
-------------------------------------------------------------------------
Power price 51 (51)
-------------------------------------------------------------------------
14. SUBSEQUENT EVENTS
a) Investment in Shelter Bay Energy Inc.
On October 1, 2008, the Trust and Shelter Bay announced the closing of a
$300.0 million private placement financing for Shelter Bay. Crescent
Point's share of the private placement was $78.7 million which was
financed through the Trust's existing credit facilities. With the closing
of the private placement, Crescent Point's aggregate investment in
Shelter Bay is approximately $200.3 million which equates to a 21 percent
equity interest in Shelter Bay.
b) Credit Facility
On October 16, 2008, the amount available under the Trust's credit
facility was increased from $1.0 billion to $1.15 billion.
15. COMPARATIVE INFORMATION
Certain information provided for the previous period has been restated to
conform to the current period presentation.
Directors Legal Counsel
Peter Bannister, Chairman(1)(3) McCarthy Tétrault LLP
Calgary, Alberta
Paul Colborne(2)(4)
Evaluation Engineers
Ken Cugnet(3)(4)(5)
GLJ Petroleum Consultants Ltd.
Hugh Gillard(1)(2)(5) Calgary, Alberta
Gerald Romanzin(1)(3) Sproule Associates Ltd.
Calgary, Alberta
Scott Saxberg(4)
Registrar and Transfer Agent
Greg Turnbull(2)(5)
Investors are encouraged to
(1) Member of the Audit Committee contact Crescent Point's
of the Board of Directors Registrar and Transfer Agent
(2) Member of the Compensation for information regarding
Committee of the Board of their security holdings:
Directors
(3) Member of the Reserves Committee Olympia Trust Company
of the Board of Directors 2300, 125 - 9th Avenue S.E.
(4) Member of the Health, Safety and Calgary, Alberta T2G 0P6
Environment Committee of the Board Tel: (403) 261-0900
of Directors
(5) Member of the Corporate Governance Stock Exchange
Committee
Toronto Stock Exchange - TSX
Officers
Stock Symbol
Scott Saxberg
President and Chief Executive Officer CPG.UN
C. Neil Smith Investor Contacts
Vice President, Engineering and
Business Development Scott Saxberg
President and Chief Executive
Greg Tisdale Officer
Chief Financial Officer (403) 693-0020
Dave Balutis Greg Tisdale
Vice President, Geosciences Chief Financial Officer
(403) 693-0020
Tamara MacDonald
Vice President, Land Trent Stangl
Vice President, Marketing and
Trent Stangl Investor Relations
Vice President, Marketing and (403) 693-0020
Investor Relations
Ken Lamont
Controller and Treasurer
Head Office
Suite 2800, 111 - 5th Avenue S.W.
Calgary, Alberta T2P 3Y6
Tel: (403) 693-0020
Fax: (403) 693-0070
Toll Free: (888) 693-0020
Banker
The Bank of Nova Scotia
Calgary, Alberta
Auditor
PricewaterhouseCoopers LLP
Calgary, Alberta%SEDAR: 00019829E
For further information:
For further information: Investor Contacts: Scott Saxberg, President and Chief Executive Officer, (403) 693-0020; Greg Tisdale, Chief Financial Officer, (403) 693-0020; Trent Stangl, Manager, Marketing and Investor Relations, (403) 693-0020