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Message: Article in Oilweek Magazine on CPG

The following article appeared in Oilweek Magazine on CPG in December 2009:

Dec 2009
Source: Oilweek Magazine Bakken overdrive
As Oilweek's 2009 Producer of the Year, Crescent Point's Scott Saxberg is more than pulling his weight

by Paul Stastny

Scott Saxberg´s office reflects the confidence, order, and level-headed professionalism he conveys in spades as president and chief operating officer of Crescent Point Energy Corp., this Oilweek´s 2009 Producer of the Year. The centrepiece of this domain is a prominent desk set against a curtain of glass. Off to the side, there´s a meeting table with chairs. But if you´re looking for something as a conversational icebreaker-say a wall of family pictures or a personal artifact-you won´t readily find it.

Yet, let your gaze linger on any of the three impressive landscape oil paintings adorning the walls, and Saxberg´s demeanor softens. He says his father painted those.

The canoe floating in reflective stillness is of Shebandowan Lake in Ontario´s Canadian Shield, west of Thunder Bay. It´s where his father, a former disc jockey, radio announcer, and educator, now lives. In another painting of the lake´s pristine shoreline, hidden somewhere amongst the trees, is Scott´s own family cottage backing onto a dirt road called Crescent Point.

"And Shelter Bay [the name shared by a private company Crescent Point Energy Corp. owns and manages internally] is a bay down the lake," Saxberg adds.

In collecting clues to Crescent Point´s success in Saskatchewan´s Bakken and Shaunavon tight oilfields, these paintings are a bit of an "ah-ha" experience. Yes, the company is in the right play at the right time. Yes, it has a talented team. But the stamp of its top executive, an engineer by training, sets a course that is equal-measure brains and conscientious care. Crescent Point Energy is close to Saxberg´s heart.

The numbers
In 2001, Scott Saxberg and Paul Coburn started a private oil and gas company, which sold into Crescent Point Energy Ltd. and, in the same year, went through an Initial Public Offering. Coburn became the public company´s president and Saxberg its vice-president of production and engineering. Their focus was big oil in-place and growth through drilling and acquisitions. Then in 2003, with the purchase of Tappit Resources, Crescent Point converted into a royalty trust, Saxberg took over as lead and Coburn moved on to Starpoint, which eventually was sold and became TriStar Oil & Gas.

Saskatchewan was of intense interest for both men, but to say Crescent Point or any other producer operating there "discovered" the Bakken isn´t accurate because the industry knew the oil was there all along. It was just locked up in a low-permeability/low-porosity formation.

The initial breakthrough in the Bakken came four years ago with horizontal drilling and Halliburton´s SurgiFrac completions system using coil tubing and multi-stage fracturing. But what put the play on the map was the application of horizontal drilling in combination with the Packers Plus StackFrac system of open-hole multi-stage fracing.

A similar combination of technologies launched the U.S. shale gas revolution that would flood North America with natural gas. That development would conspire with a global economic recession, oil and cash would become king, and Saskatchewan would emerge as a Canadian economic champion.

With its abundant reserves in uranium, potash, and oil, Saskatchewan was determined not to make the same mistake as Alberta. It maintained a stable tax and royalty regime and was rewarded with companies like Crescent Point, who all but threw in the towel on Alberta and focused on the bountiful Bakken.

Today Crescent Point, a 90 per cent oil-weighted company, produces more than 85 per cent of it from Saskatchewan. It still has about 6,000 barrels a day in Alberta, but 95 per cent of its capital programs are directed at Saskatchewan, where it produces 21,000 barrels a day from the Bakken, plus another 8,000 barrels a day through Shelter Bay and about 5,000 barrels a day from Saskatchewan´s other hot play at Shaunavon in the southwest corner of the province.

The Shaunavon kind of surprised everyone as horizontal well/multi-stage fracing migrated there from the Bakken. The Shaunavon is now considered the third-largest conventional oilfield in western Canada, after the Bakken and the Pembina in Alberta (the largest). This year, Crescent Point paid $665.3 million for privately held oil and gas producer Wave Energy, whose land holdings provide access to an estimated one billion net barrels of oil. The total Shaunavon field is producing about 8,000 barrels a day, and Crescent Point is by far its dominant player.

"There´s a total of about 4.3 billion barrels of reserves in the Shaunavon," Saxberg says. "And four [billion] to five billion barrels of proved and probable in the Bakken."

The work Crescent Point has done in the Bakken gives it an enviable reserves life of 13.7 years, which Saxberg says is a conservative calculation. Crescent Point has drilled over 400 wells in the Bakken from an inventory of 3,700 drillable locations (2,800 net). Drilling eight wells per section, each well costs about $1.5 million. The payout per well is within six or seven months at current oil prices-it was half that last year during the run up in oil prices.

"Our total cost for a well used to be $2 million," Saxbeg says. "We´ve driven our cost down through the drill bit, improved technology, and [that´s] because of the drop in service costs due to the economy. So we saved a half million dollars per well from last year to this year. That adds up."

Last year, Crescent Point/Shelter Bay spent over $1 billion in the Bakken. It plans to spend a more moderate $475 million this year and in 2010 expects to spend at least $500 million, not including acquisitions.

"We haven´t set our budget yet, but this year we´re looking to drill about 170 wells and next year it will be close to 200 wells," he says.

The Bakken also produces about 12 million cubic feet a day of solution gas for Crescent Point. That would be more exciting if natural gas prices were something better than $3 per thousands cubic feet, but still, the plans to grow gas production to 18 million cubic feet per day and once its Saskatchewan gas plant expansion is completed in 2010, it will ramp production to 30 million a day with the help of outside parties.

Shifting into overdrive
It is difficult to speak of the Bakken without touching on PetroBakken, the newly formed corporate entity that emerged following Petrobank Energy´s $580-million acquisition of TriStar Oil and Gas. PetroBakken plans to drill some 130 bi-lateral horizontal wells a year in the Bakken over the next five years. By the end of this year, it expects to be producing 30,000 barrels a day, making it the most powerful entity in the Bakken and prompting Oilweek to dub John Wright and Gregg Smith the "Barons of the Bakken" in its October issue.

That title doesn´t sit particularly well with Saxberg, who ironically laments nobody ever called him a "Baron" when Cresent Point was the dominant player. But joking aside, Saxberg isn´t ruffled by the combined strength of the competition. Actually, he sees PetroBakken as a positive development. Two powerful players in the play is good for attracting investor interest and, besides, Crescent Point and PetroBakken are partnered on numerous projects in the area.

But there are also some important differences between PetroBakken and Crescent Point, in particular, their view on waterflooding. PetroBakken expects between 20 and 25 per cent oil recovery in the Bakken and has said the formation is not amenable to waterflooding because of its low permeability. Crescent Point believes it is.

"The reason [PetroBakken doesn´t] think waterflood is prospective is because they haven´t done the work," Saxberg says. "We´ve had three years of waterflood pilot projects. Crescent Point has been the only company testing the waterflood potential in the Bakken since day one."

For Saxberg, waterflood is the big prize, providing the highest recovery and best economic scenario. Based on some of this preliminary work, he thinks waterflood could yield upwards of 33 per cent oil recovery in the Bakken. And while Crescent Point and PetroBakken currently use the same technology to drill and complete wells in the Bakken, these different ends are already dictating different means.

"We use the Packers Plus system but we´re now moving towards the cement casing," Saxberg explains. "The advantage of cemented casing is that we can go in later and do additional fracs, which is in keeping with our longer-term view of waterflooding. With the Packers system you can´t go back and refrac."

The concern is that after 5 or 10 years, open-hole injector wells will plug off and will need to be refraced, or they may need refracing just to move water around differently. So as Crescent Point ramps up its waterflood pilot programs-a second pilot comes on this November and two or three more are planned for 2010-it may mark a technical divergence in how the two heavyweights operate in the play.

"The biggest risk for developing this Bakken pool is overcapitalization," Saxberg says. "You want to be certain you have the right completion technique, the right construction for your facilities, the right infrastructure, and that you´ve set up a proper drilling pattern for waterflooding."

The early days with Halliburton´s SurgiFrac provided a valuable lesson. Those initial wells fraced with SurgiFrac had to be fraced again with packers, which meant producers had spent twice as much on completions.

So besides the cased hole/open hole dilemma, Crescent Point is analyzing all the options. "Is 15 fracs per leg valid?" Saxberg questions. "It may be that eight is optimal. Nobody has the data yet to show that 15 stages is better than 8 or 10. A year ago, we went from 8 to 11 stages and, right now, we have data that shows there´s no difference between going from 8 to 11 stages. Yet each stage costs about $20,000.

"It sounds really good to do 20 fracs or more but, at some point, there´s a crossover of too much capital to get the same reserves out. That´s your risk. If you jump in with both feet and don´t test the waters on different completion techniques, you can then destroy a great project."

Saxberg likens current Bakken development to a gas play: producers try to get as much upfront initial production as possible. "But if waterflood works out, you don´t need that high IP necessarily to get the better economics because we´ll have wells that produce 200 barrels a day for a year versus a short window of one month at 300 barrels a day going to 50 barrels a day."

With the economy in tentative recovery, Crescent Point´s future is bright. It has sorted out its conversion from royalty trust to corporation this summer and continues to pay out healthy dividends.

"On after-tax basis our shareholders actually get a 40 per cent increase because of the dividend tax credit," Saxberg says. "Before that, we handed out $0.23 a month and [unit holders] got $0.14 after tax. We still give out $0.23, but now you get $0.20 instead of $0.14. It´s a huge lift. Most companies would have to cut their dividend to pay for the tax, but we set ourselves up with tax pools and enough room in our cash flow to not have to cut our dividend."

The same strong balance sheet has also allowed Crescent Point to make strategic acquisitions. Earlier in the year, it partnered with TriStar to acquire Talisman´s massive land position in the Bakken. As for having paid too much, as some analysts claimed, Saxberg says, "We bought at the low [point] of the market. We paid $325 million for our share. TriStar sold to Petrobank just now for twice that. So we either pay too much for Talisman or Petrobank paid twice as much for TriStar."

As Crescent Point moves ahead into this bright future, it does so with an impressive tool kit. It hedges a portion of its oil and gas production as far as three and a half years forward to better manage cash flow, taxes, and to ride out any other downturns in commodity prices; it maintains a large fracing inventory to grow production, even if it has to claw back drilling again to save money due to commodity price swings; and it keeps a debt-to-cash flow ratio of less than one but maintains a large under-utilized credit within its bank lines just in case the company gets squeezed.

"We recognize that oil prices have been good to us compared to some other companies," Saxberg says. "But we have a healthy dose of fear that drives us to succeed and to manage our business in a way that protects against downturns while also providing strong growth."

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Cheers; Scott

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