EX-99.2 3 cpgye2018fs.htm EXHIBIT 99.2 Exhibit
Exhibit 99.2
MANAGEMENT'S REPORT                                        

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Crescent Point Energy Corp. is responsible for the preparation of the consolidated financial statements. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and include certain estimates that reflect management’s best estimates and judgments. Management has determined such amounts on a reasonable basis in order to determine that the consolidated financial statements are presented fairly in all material respects.
PricewaterhouseCoopers LLP, an independent firm of chartered professional accountants, was appointed by a resolution of the Board of Directors to audit the consolidated financial statements of the Company and to provide an independent professional opinion. PricewaterhouseCoopers LLP was appointed to hold such office until the next annual meeting of the shareholders of the Company.
The Board of Directors, through its Audit Committee, has reviewed the consolidated financial statements including notes thereto with management and PricewaterhouseCoopers LLP. The members of the Audit Committee are composed of independent directors who are not employees of the Company. The Audit Committee meets regularly with management and PricewaterhouseCoopers LLP to review and approve the consolidated financial statements. The Board of Directors has approved the information contained in the consolidated financial statements based on the recommendation of the Audit Committee.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management has developed and maintains an extensive system of internal accounting controls that provide reasonable assurance that all transactions are accurately recorded, that the consolidated financial statements realistically report the Company’s operating and financial results, and that the Company’s assets are safeguarded. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Management has assessed the effectiveness of the Company's internal control over financial reporting as at December 31, 2018. The assessment was based on the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") framework in Internal Control - Integrated Framework (2013) to evaluate the design and effectiveness of internal control over financial reporting. Management concluded that this system of internal controls was effective as of December 31, 2018. The Company has effective disclosure controls and procedures to ensure timely and accurate disclosure of material information relating to the Company which complies with the requirements of Canadian securities legislation and the United States Sarbanes - Oxley Act of 2002.
PricewaterhouseCoopers LLP, an independent firm of chartered professional accountants who also audited the Company's consolidated financial statement for the year ended December 31, 2018, has audited the effectiveness of the Company's internal control over financial reporting as at December 31, 2018.
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Craig Bryksa
President and Chief Executive Officer
Ken Lamont
Chief Financial Officer

March 6, 2019

CRESCENT POINT ENERGY CORP.
1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Crescent Point Energy Corp.

Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Crescent Point Energy Corp. and its subsidiaries, (together, the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of comprehensive income, shareholders’ equity and cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and their financial performance and their cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report On Internal Controls Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Chartered Professional Accountants
Calgary, Alberta, Canada
March 6, 2019

We have served as the Company’s auditor since 2001.



CRESCENT POINT ENERGY CORP.
2

CONSOLIDATED BALANCE SHEETS
As at December 31
 


 


 
(Cdn$ millions)
Notes
2018

 
2017

 
ASSETS
 
 
 
 
 
Cash
 
15.3

 
62.4

 
Accounts receivable
 
322.6

 
380.2

 
Prepaids and deposits
 
4.6

 
4.5

 
Derivative asset
25
244.1

 
35.8

 
Assets held for sale
8, 9
—

 
26.4

 
Total current assets
 
586.6

 
509.3

 
Long-term investments
5
8.7

 
72.6

 
Derivative asset
25
351.5

 
246.9

 
Other long-term assets
6
34.5

 
34.5

 
Exploration and evaluation
7, 8
472.6

 
634.9

 
Property, plant and equipment
8, 9
10,430.2

 
14,062.4

 
Goodwill
10
244.0

 
251.9

 
Deferred income tax
 
602.3

 
192.8

 
Total assets
 
12,730.4

 
16,005.3

 
LIABILITIES
 
 
 
 
 
Accounts payable and accrued liabilities
 
532.9

 
613.3

 
Dividends payable
 
16.5

 
16.8

 
Current portion of long-term debt
12
99.8

 
63.8

 
Derivative liability
25
—

 
107.3

 
Other current liabilities
11, 23
39.4

 
57.7

 
Liabilities associated with assets held for sale
14
—

 
4.6

 
Total current liabilities
 
688.6

 
863.5

 
Long-term debt
12
4,176.9

 
4,047.2

 
Derivative liability
25
—

 
16.6

 
Other long-term liabilities
13, 23
48.3

 
54.0

 
Decommissioning liability
14
1,203.8

 
1,310.5

 
Deferred income tax
 
—

 
550.6

 
Total liabilities
 
6,117.6

 
6,842.4

 
SHAREHOLDERS’ EQUITY
 
 
 
 
 
Shareholders’ capital
15
16,546.9

 
16,489.6

 
Contributed surplus
 
41.4

 
72.9

 
Deficit
16
(10,567.2
)
 
(7,751.8
)
 
Accumulated other comprehensive income
 
591.7

 
352.2

 
Total shareholders' equity
 
6,612.8

 
9,162.9

 
Total liabilities and shareholders' equity
 
12,730.4

 
16,005.3

 
Commitments (Note 27)
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board of Directors:
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Laura A. Cillis
Director
Gerald A. Romanzin
Director

CRESCENT POINT ENERGY CORP.
3

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31
 
 
 
2017
(Revised)

 
(Cdn$ millions, except per share amounts)
Notes
2018

 
 
REVENUE AND OTHER INCOME
 
 
 
 
 
Oil and gas sales
18
3,887.5

 
3,303.9

 
Purchased product sales
 
25.4

 
27.0

 
Royalties
 
(592.4
)
 
(472.2
)
 
Oil and gas revenue
 
3,320.5

 
2,858.7

 
Derivative gains (losses)
19, 25
179.6

 
(62.4
)
 
Other income (loss)
5, 20
(143.5
)
 
27.8

 
 
 
3,356.6

 
2,824.1

 
EXPENSES
 
 
 
 
 
Operating
 
853.8

 
807.2

 
Purchased product
 
24.0

 
27.8

 
Transportation
 
131.7

 
133.8

 
General and administrative
 
121.9

 
98.0

 
Interest on long-term debt
 
184.4

 
162.3

 
Foreign exchange (gain) loss
21
234.0

 
(215.7
)
 
Share-based compensation
23
46.0

 
62.0

 
Depletion, depreciation, amortization and impairment
7, 9
5,284.7

 
1,741.4

 
Accretion
13, 14
31.5

 
30.9

 
 
 
6,912.0

 
2,847.7

 
Net income (loss) before tax
 
(3,555.4
)
 
(23.6
)
 
 
 
 
 
 
 
Tax expense (recovery)
 
 
 
 
 
Current
22
0.3

 
(1.7
)
 
Deferred
22
(938.8
)
 
102.1

 
Net income (loss)
 
(2,616.9
)
 
(124.0
)
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
Items that may be subsequently reclassified to profit or loss
 
 
 
 
Foreign currency translation of foreign operations
 
239.5

 
(160.3
)
 
Comprehensive income (loss)
 
(2,377.4
)
 
(284.3
)
 
 
 
 
 
 
 
Net income (loss) per share
24
 
 
 
 
Basic
 
(4.77
)
 
(0.23
)
 
Diluted
 
(4.77
)
 
(0.23
)
 
See accompanying notes to the consolidated financial statements.

CRESCENT POINT ENERGY CORP.
4

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Cdn$ millions, except per share amounts)
Notes
Shareholders’ capital

 
Contributed surplus

 
Deficit

 
Accumulated other comprehensive income

 
Total
shareholders’
equity

 
December 31, 2017
 
16,489.6

 
72.9

 
(7,751.8
)
 
352.2

 
9,162.9

 
Redemption of restricted shares
15
57.3

 
(59.0
)
 


 


 
(1.7
)
 
Share-based compensation
23


 
35.1

 


 


 
35.1

 
Forfeit of restricted shares
23


 
(7.6
)
 


 


 
(7.6
)
 
Net income (loss)
 


 


 
(2,616.9
)
 


 
(2,616.9
)
 
Dividends ($0.36 per share)
 


 


 
(198.5
)
 


 
(198.5
)
 
Foreign currency translation adjustment
 


 


 


 
239.5

 
239.5

 
December 31, 2018
 
16,546.9

 
41.4

 
(10,567.2
)
 
591.7

 
6,612.8

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
16,400.2

 
110.6

 
(7,432.1
)
 
512.5

 
9,591.2

 
Redemption of restricted shares
 
89.6

 
(91.9
)
 
2.0

 


 
(0.3
)
 
Share issue costs, net of tax
 
(0.2
)
 


 


 


 
(0.2
)
 
Share-based compensation
 


 
62.1

 


 


 
62.1

 
Forfeit of restricted shares
 


 
(7.9
)
 


 


 
(7.9
)
 
Net income (loss)
 


 


 
(124.0
)
 


 
(124.0
)
 
Dividends ($0.36 per share)
 


 


 
(197.7
)
 


 
(197.7
)
 
Foreign currency translation adjustment
 


 


 


 
(160.3
)
 
(160.3
)
 
December 31, 2017
 
16,489.6

 
72.9

 
(7,751.8
)
 
352.2

 
9,162.9

 
See accompanying notes to the consolidated financial statements.

CRESCENT POINT ENERGY CORP.
5

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
 
 
 
(Cdn$ millions)
Notes
2018

 
2017

 
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
 
 
 
 
Net income (loss)
 
(2,616.9
)
 
(124.0
)
 
Items not affecting cash
 
 
 
 
 
Other (income) loss
5, 20
143.5

 
(27.8
)
 
Deferred tax expense (recovery)
22
(938.8
)
 
102.1

 
Share-based compensation
23
19.8

 
42.2

 
Depletion, depreciation, amortization and impairment
7, 9
5,284.7

 
1,741.4

 
Accretion
13, 14
31.5

 
30.9

 
Unrealized (gains) losses on derivatives
19, 25
(439.4
)
 
163.6

 
Translation of US dollar long-term debt
21
324.5

 
(255.8
)
 
Other
29
(2.5
)
 
(2.1
)
 
Realized (gain) loss on cross currency swap maturity
21
(70.3
)
 
54.6

 
Decommissioning expenditures
 
(25.3
)
 
(25.1
)
 
Change in non-cash working capital
29
37.2

 
18.7

 
 
 
1,748.0

 
1,718.7

 
INVESTING ACTIVITIES
 
 
 
 
 
Development capital and other expenditures
7, 9
(1,817.8
)
 
(1,854.7
)
 
Capital acquisitions, net
8
(15.4
)
 
(308.1
)
 
Capital dispositions
8
243.3

 
266.1

 
Other long-term assets
6
—

 
2.2

 
Long-term investments
5
162.1

 
0.1

 
Change in non-cash working capital
29
(81.6
)
 
(65.8
)
 
 
 
(1,509.4
)
 
(1,960.2
)
 
FINANCING ACTIVITIES
29
 
 
 
 
Issue of shares, net of issue costs
 
(1.7
)
 
(2.6
)
 
Increase (decrease) in bank debt, net
 
(360.0
)
 
635.9

 
Issuance of senior guaranteed notes
 
267.3

 
—

 
Repayment of senior guaranteed notes
 
(65.0
)
 
(90.3
)
 
Realized gain (loss) on cross currency swap maturity
21
70.3

 
(54.6
)
 
Cash dividends
 
(198.5
)
 
(197.7
)
 
Change in non-cash working capital
29
(0.3
)
 
0.5

 
 
 
(287.9
)
 
291.2

 
Impact of foreign currency on cash balances
 
2.2

 
(0.7
)
 
INCREASE (DECREASE) IN CASH
 
(47.1
)
 
49.0

 
CASH AT BEGINNING OF YEAR
 
62.4

 
13.4

 
CASH AT END OF YEAR
 
15.3

 
62.4

 
See accompanying notes to the consolidated financial statements.

Supplementary Information:
Cash taxes paid
—

 
(0.3
)
 
Cash interest paid
(177.1
)
 
(159.2
)
 

CRESCENT POINT ENERGY CORP.
6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
December 31, 2018 and 2017
1.
STRUCTURE OF THE BUSINESS
The principal undertaking of Crescent Point Energy Corp. (the “Company” or “Crescent Point”) is to carry on the business of acquiring, developing and holding interests in petroleum and natural gas properties and assets related thereto through a general partnership and wholly owned subsidiaries.
Crescent Point is the ultimate parent and is amalgamated in Alberta, Canada under the Alberta Business Corporations Act. The address of the principal place of business is 2000, 585 - 8th Ave S.W., Calgary, Alberta, Canada, T2P 1G1.
These annual consolidated financial statements were approved and authorized for issue by the Company's Board of Directors on March 6, 2019.
2.
BASIS OF PREPARATION
a)
Preparation
These consolidated financial statements are presented under International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The policies applied in these consolidated financial statements are based on IFRS issued and outstanding as of March 6, 2019, the date the Board of Directors approved the statements.
The Company’s presentation currency is Canadian dollars and all amounts reported are Canadian dollars unless noted otherwise. References to “US$” are to United States ("U.S.") dollars. Crescent Point's Canadian and U.S. operations are aggregated into one reportable segment based on similar economic characteristics and the similar nature of the assets, products, production processes and customers.
b)
Basis of measurement, functional and presentation currency
The Company’s presentation currency is Canadian dollars. The accounts of the Company’s foreign operations that have a functional currency different from the Company’s presentation currency are translated into the Company’s presentation currency at period end exchange rates for assets and liabilities and at the average rate over the period for revenues and expenses. Translation gains and losses relating to the foreign operations are recognized in Other Comprehensive Income as cumulative translation adjustments.
c)
Use of estimates and judgments
The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected. Significant estimates and judgments made by management in the preparation of these consolidated financial statements are outlined below.
Oil and gas activities
Reserves estimates, although not reported as part of the Company’s consolidated financial statements, can have a significant effect on net income, assets and liabilities as a result of their impact on depletion, depreciation and amortization (“DD&A”), decommissioning liability, deferred taxes, asset impairments and business combinations. Independent petroleum reservoir engineers perform evaluations of the Company’s oil and gas reserves on an annual basis. The estimation of reserves is an inherently complex process requiring significant judgment. Estimates of economically recoverable oil and gas reserves are based upon a number of variables and assumptions such as geoscientific interpretation, production forecasts, commodity prices, costs and related future cash flows, all of which may vary considerably from actual results. These estimates are expected to be revised upward or downward over time, as additional information such as reservoir performance becomes available, or as economic conditions change.
For purposes of impairment testing, property, plant and equipment (“PP&E”) is aggregated into cash-generating units (“CGUs”), based on separately identifiable and largely independent cash inflows. The determination of the Company’s CGUs is subject to judgment. Factors considered in the classification of CGUs include the integration between assets, shared infrastructures, the existence of common sales points, geography, geologic structure and the manner in which management monitors and makes decisions regarding operations.
The determination of technical feasibility and commercial viability, based on the presence of reserves and which results in the transfer of assets from exploration and evaluation ("E&E") to PP&E, is subject to judgment.
Decommissioning liability
Upon retirement of its oil and gas assets, the Company anticipates incurring substantial costs associated with decommissioning. Estimates of these costs are subject to uncertainty associated with the method, timing and extent of future decommissioning activities. The liability, the related asset and the expense are impacted by estimates with respect to the cost and timing of decommissioning.

CRESCENT POINT ENERGY CORP.
7

Business combinations
Business combinations are accounted for using the acquisition method of accounting. The determination of fair value often requires management to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of PP&E and E&E assets acquired generally require the most judgment and include estimates of reserves acquired, forecast benchmark commodity prices and discount rates. Changes in any of the assumptions or estimates used in determining the fair value of acquired assets and liabilities could impact the amounts assigned to assets, liabilities and goodwill. Future net earnings can be affected as a result of changes in future DD&A, asset impairment or goodwill impairment.
Fair value measurement
The estimated fair value of derivative instruments resulting in derivative assets and liabilities, by their very nature, are subject to measurement uncertainty. Estimates included in the determination of the fair value of derivative instruments include forward benchmark prices, discount rates and forward foreign exchange rates.
Joint control
Judgment is required to determine when the Company has joint control over an arrangement, which requires an assessment of the capital and operating activities of the projects it undertakes with partners and when the decisions in relation to those activities require unanimous consent.
Share-based compensation
Compensation costs recorded pursuant to share-based compensation plans are subject to estimated fair values, forfeiture rates and the future attainment of performance criteria.
Income taxes
Tax regulations and legislation and the interpretations thereof are subject to change. In addition, deferred income tax assets and liabilities recognize the extent that temporary differences will be receivable and payable in future periods. The calculation of the asset and liability involves a significant amount of estimation including an evaluation of when the temporary differences will reverse, an analysis of the amount of future taxable earnings, the availability of cash flows including reserve estimates and the application of tax laws. Changes in tax regulations and legislation and the other assumptions listed are subject to measurement uncertainty.
3.
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently by the Company and its subsidiaries for all periods presented in these annual consolidated financial statements.
a)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries and any reference to the “Company” throughout these consolidated financial statements refers to the Company and its subsidiaries. All transactions between the Company and its subsidiaries have been eliminated.
The Company conducts some of its oil and gas production activities through jointly controlled operations and the financial statements reflect only the Company's proportionate interest in such activities. Joint control exists for contractual arrangements governing the Company's assets whereby the Company has less than 100 percent working interest, all of the partners have control of the arrangement collectively, and spending on the project requires unanimous consent of all parties that collectively control the arrangement and share the associated risks. The Company does not have any joint arrangements that are material to the Company or that are structured through joint venture arrangements.
b)
Property, Plant and Equipment
Items of PP&E, which primarily consist of oil and gas development and production assets, are measured at cost less accumulated depletion, depreciation and any accumulated impairment losses. Development and production assets are accumulated into CGUs and represent the cost of developing the commercial reserves and initiating production.
Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of replacing parts of PP&E are recognized as development and production assets only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in net income as incurred. Capitalized development and production assets generally represent costs incurred in developing reserves and initiating or enhancing production from such reserves. The carrying amount of any replaced or sold component is derecognized.
Depletion and Depreciation
Development and production costs accumulated within major areas are depleted using the unit-of-production method based on estimated proved plus probable reserves before royalties, as determined by independent petroleum reservoir engineers. Natural gas reserves and production are converted to equivalent barrels of oil based upon the relative energy content (6:1). The depletion base includes capitalized costs, plus future costs to be incurred in developing proved plus probable reserves.
Corporate assets are depreciated over the estimated useful lives of the related assets, ranging from 5 to 16 years on a straight-line basis.

CRESCENT POINT ENERGY CORP.
8

Impairment
The carrying amounts of PP&E are grouped into CGUs and reviewed quarterly for indicators of impairment. Indicators are events or changes in circumstances that indicate the carrying amount may not be recoverable. If indicators of impairment exist, the recoverable amount of the CGU is estimated. If the carrying amount of the CGU, adjusted for the discounted abandonment and reclamation costs on proved plus probable undeveloped oil and gas reserves, exceeds the recoverable amount, the CGU is written down with an impairment recognized in net income.
Assets are grouped into CGUs based on the integration between assets, shared infrastructures, the existence of common sales points, geography, geologic structure and the manner in which management monitors and makes decisions regarding operations. Estimates of future cash flows used in the calculation of the recoverable amount are based on reserve evaluation reports prepared by independent petroleum reservoir engineers. The recoverable amount is the higher of fair value less costs of disposal and the value-in-use. Fair value less costs of disposal is derived by estimating the discounted after-tax future net cash flows from proved plus probable oil and gas reserves. Discounted future net cash flows are based on forecasted commodity prices and costs over the expected economic life of the reserves and discounted using market-based rates to reflect a market participant’s view of the risks associated with the assets. Value-in-use is assessed using the expected future cash flows from proved plus probable oil and gas reserves discounted at a pre-tax rate.
Impairment losses recognized in prior periods, other than goodwill impairments, are assessed at each reporting date for any indicators that the impairment losses may no longer exist or may have decreased. In the event that an impairment loss reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the carrying amount does not exceed the amount that would have been determined, net of depletion, had no impairment loss been recognized on the asset in prior periods. The amount of the reversal is recognized in net income.
c)
Exploration and Evaluation
Exploration and evaluation assets are comprised of the accumulated expenditures incurred in an area where technical feasibility and commercial viability has not yet been determined. Exploration and evaluation assets include undeveloped land and any drilling costs thereon.
Technical feasibility and commercial viability are considered to be determinable when reserves are discovered. Upon determination of reserves, E&E assets attributable to those reserves are first tested for impairment and then reclassified from E&E assets to PP&E.
Costs incurred prior to acquiring the legal rights to explore an area are expensed as incurred.
Amortization
Undeveloped land classified as E&E is amortized by major area over the average primary lease term and recognized in net income. Drilling costs classified as E&E assets are not amortized but are subject to impairment.
Impairment
Exploration and evaluation assets are reviewed quarterly for indicators of impairment and upon reclassification from E&E to PP&E. Exploration and evaluation assets are tested for impairment at the operating segment level by combining E&E assets with PP&E, adjusted for the discounted abandonment and reclamation costs on proved plus probable undeveloped oil and gas reserves as described in the PP&E impairment test. The recoverable amount is the greater of fair value less costs of disposal or value-in-use. Fair value less costs of disposal is derived by estimating the discounted after-tax future net cash flows from proved plus probable oil and gas reserves, plus the fair market value of undeveloped land. Value-in-use is assessed using the expected future cash flows from proved plus probable oil and gas reserves discounted at a pre-tax rate.
Impairments of E&E assets are reversed when there has been a subsequent increase in the recoverable amount, but only to the extent of what the carrying amount would have been, net of amortization, had no impairment been recognized.
d)
Decommissioning Liability
The Company recognizes the present value of a decommissioning liability in the period in which it is incurred. The obligation is recorded as a liability on a discounted basis using the relevant risk free rate, with a corresponding increase to the carrying amount of the related asset. Over time, the liabilities are accreted for the change in their present value and the capitalized costs are depleted on a unit-of-production basis over the life of the underlying proved plus probable reserves. Accretion expense is recognized in net income. Revisions to the discount rate, estimated timing or amount of future cash flows would also result in an increase or decrease to the decommissioning liability and related asset.
e)
Reclamation Fund
The Company established a voluntary reclamation fund to fund future decommissioning costs and environmental initiatives. Effective January 1, 2018, the Board of Directors approved contributions of $0.40 per barrel of oil equivalent of production. There were contributions to the fund of $27.6 million during 2018. Additional contributions can be made at the discretion of management.

CRESCENT POINT ENERGY CORP.
9

f)
Goodwill
The Company records goodwill relating to business combinations when the purchase price exceeds the fair value of the net identifiable assets and liabilities of the acquired business. The goodwill balance is assessed for impairment annually or as events occur that could result in impairment. Goodwill is tested for impairment at an operating segment level by combining the carrying amounts of PP&E, adjusted for the discounted abandonment and reclamation costs on proved plus probable undeveloped oil and gas reserves as described in the PP&E impairment test, E&E assets and goodwill and comparing this to the recoverable amount. The recoverable amount is the greater of fair value less costs of disposal or value-in-use. Fair value less costs of disposal is derived by estimating the discounted after-tax future net cash flows from proved plus probable oil and gas reserves, plus the fair market value of undeveloped land. Value-in-use is assessed using the expected future cash flows from proved plus probable oil and gas reserves discounted at a pre-tax rate. Any excess of the carrying amount over the recoverable amount is the impairment amount. Impairment charges, which are not tax affected, are recognized in net income. Goodwill is reported at cost less any accumulated impairment. Goodwill impairments are not reversed.
g)
Share-based Compensation
Restricted shares granted under the Restricted Share Bonus Plan are accounted for at fair value. Share-based compensation expense is determined based on the estimated fair value of shares on the date of grant. Forfeitures are estimated at the grant date. The expense is recognized over the service period, with a corresponding increase to contributed surplus. The Company capitalizes the portion of share-based compensation directly attributable to development activities, with a corresponding decrease to share-based compensation expense. At the time the restricted shares vest, the issuance of shares is recorded as an increase to shareholders’ capital and a corresponding decrease to contributed surplus.
Performance share units ("PSUs") are accounted for at fair value. Share-based compensation expense is determined based on the estimated fair value of the PSUs on the date of the grant and subsequently adjusted to reflect the fair value at each period end. Market performance conditions are factored into the fair value and the best estimate of non-market performance conditions is used to determine an estimate of the number of units that will vest. Fair value is based on the expected cash payment per PSU and the expected number of PSUs to vest, calculated from multipliers based on internal and external performance metrics. The expense is recognized over the service period, with a corresponding increase to long-term compensation liability. PSUs are settled in cash upon vesting based on the prevailing Crescent Point share price, accrued dividends and the performance multipliers.
Deferred share units (“DSUs”) are accounted for at fair value. Share-based compensation expense is determined based on the estimated fair value of the DSUs on the date of the grant and subsequently adjusted to reflect the fair value at each period end. Fair value is based on the prevailing Crescent Point share price.
h)
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the estimated effect of any differences between the accounting and tax basis of assets and liabilities, using enacted or substantively enacted income tax rates expected to apply when the deferred tax asset or liability is settled. The effect of a change in income tax rates on deferred income taxes is recognized in net income in the period in which the change occurs.
The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.
The Company is able to deduct certain settlements under its Restricted Share Bonus Plan. To the extent the tax deduction exceeds the cumulative remuneration cost for a particular restricted share grant recorded in net income, the tax benefit related to the excess is recorded directly within equity.
Deferred income tax assets and liabilities are presented as non-current.
i)
Financial Instruments
The Company uses financial derivative instruments and physical delivery commodity contracts from time to time to reduce its exposure to fluctuations in commodity prices, foreign exchange rates and interest rates. The Company also makes investments in companies from time to time in connection with the Company’s acquisition and divestiture activities.
Financial derivative instruments
Financial derivative instruments are included in current assets/liabilities except for those with maturities greater than 12 months after the end of the reporting period, which are classified as non-current assets/liabilities.
The Company has not designated any of its financial derivative contracts as effective accounting hedges and, accordingly, fair values its financial derivative contracts with the resulting gains and losses recorded in net income.
The fair value of a financial derivative instrument on initial recognition is normally the transaction price. Subsequent to initial recognition, the fair values are based on quoted market prices where available from active markets, otherwise fair values are estimated based on market prices at the reporting date for similar assets or liabilities with similar terms and conditions, or by discounting future payments of interest and principal at estimated interest rates that would be available to the Company at the reporting date.

CRESCENT POINT ENERGY CORP.
10

Financial assets and liabilities
Financial assets and liabilities are measured at fair value on initial recognition. For non-equity instruments, measurement in subsequent periods depends on the classification of the financial asset or liability as “fair value through profit or loss” or “amortized cost”.
Financial assets and liabilities classified as fair value through profit or loss are subsequently carried at fair value, with changes recognized in net income.
Financial assets and liabilities classified as amortized cost are subsequently carried at amortized cost using the effective interest rate method.
Currently, the Company classifies all non-equity financial instruments which are not financial derivative instruments as amortized cost.
At each reporting date, the Company assesses whether there is objective evidence that a financial asset carried at amortized cost is impaired. If such evidence exists, the Company recognizes an impairment loss in net income. Impairment losses are reversed in subsequent periods if the impairment loss decrease can be related objectively to an event occurring after the impairment was recognized.
For investments in equity instruments, the subsequent measurement is dependent on the Company’s election to classify such instruments as fair value through profit or loss or fair value through other comprehensive income. Currently, the Company classifies all investments in equity instruments as fair value through profit or loss, whereby the Company recognizes movements in the fair value of the investment (adjusted for dividends) in net income. If the fair value through other comprehensive income classification is selected, the Company would recognize any dividends from the investment in net income and would recognize fair value re-measurements of the investment in other comprehensive income.
Impairment of Financial Assets
Impairment losses are recognized using an expected credit loss model. The Company has adopted the simplified expected credit loss model for its accounts receivable, which permits the use of the lifetime expected loss provision.
To measure the expected credit losses, accounts receivable have been grouped based on shared credit risk characteristics and days past due. The Company uses judgment in making these assumptions and selecting the inputs into the expected loss calculation based on past history, existing market conditions and forward looking estimates at the end of each reporting period.
Prior to January 1, 2018, the Company recorded the financial asset at carrying value with any expected loss provided for through the use of an allowance account.
j)
Business Combinations
Business combinations are accounted for using the acquisition method. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the acquisition date. The excess of the cost of the acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets acquired, the difference is recognized immediately in net income. Transaction costs associated with business combinations are expensed as incurred.
k)
Foreign Currency Translation
Foreign operations
The Company has operations in the U.S. transacted via U.S. subsidiaries. The assets and liabilities of foreign operations are restated to Canadian dollars at exchange rates in effect at the balance sheet date. The income and expenses of foreign operations are translated to Canadian dollars using the average exchange rate for the period. The resulting unrealized gain or loss is included in other comprehensive income.
Foreign transactions
Transactions in foreign currencies not incurred by the Company’s U.S. subsidiaries are translated to Canadian dollars at exchange rates in effect at the transaction dates. Foreign currency assets and liabilities are restated to Canadian dollars at exchange rates in effect at the balance sheet date and income and expenses are restated to Canadian dollars using the average exchange rate for the period. Both realized and unrealized gains and losses resulting from the settlement or restatement of foreign currency transactions are included in net income.
l)
Revenue Recognition
The Company’s major revenue sources are comprised of sales from the production of crude oil, natural gas liquids ("NGLs") and natural gas. Revenue is recognized when control of the product transfers to the customer and the collection is reasonably probable, generally upon delivery of the product. Sales of crude oil, NGLs and natural gas production are based on variable pricing as the transaction prices are based on benchmark commodity prices and other variable factors, including quality differentials and location.

CRESCENT POINT ENERGY CORP.
11

Each contract is evaluated based on the nature of the performance obligations, including the Company’s role as either principal or agent. Where the Company acts as principal, revenue is recognized on a gross basis. Where the Company acts as agent, revenue is recognized on a net basis.
Prior to January 1, 2018, the Company recorded oil and gas revenue for the sale of crude oil, natural gas and natural gas liquids when the risks and rewards of ownership had been substantially transferred.
m)
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments with original maturities of three months or less.
n)
Leases
Leases in which substantially all of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease payments are recognized as an expense on a straight-line basis over the lease term.
Leases where the Company assumes substantially all the risks and rewards of ownership are classified as finance leases within property, plant and equipment.
All of the Company's current leases are treated as operating leases and are recognized in net income on a straight-line basis.
o)
Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing the net income for the period attributable to equity owners of the Company by the weighted average number of common shares outstanding during the period.
Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for dilutive instruments. The number of shares included with respect to dilutive instruments, being restricted shares issued under the Company’s Restricted Share Bonus Plan, is computed using the treasury stock method. The treasury stock method assumes that the deemed proceeds related to unrecognized share-based compensation are used to repurchase shares at the average market price during the period.
p)
Assets Held for Sale
PP&E and E&E assets are classified as held for sale if it is highly probable their carrying amounts will be recovered through a capital disposition rather than through future operating cash flows. Before PP&E and E&E assets are classified as held for sale, they are assessed for indicators of impairment or reversal of previously recorded impairments and are measured at the lower of their carrying amount and fair value less costs of disposal. Any impairment charges or recoveries are recognized in net income. Assets held for sale are classified as current assets and are not subject to DD&A. Decommissioning liabilities associated with assets held for sale are classified as current liabilities.
4. CHANGES IN ACCOUNTING POLICIES
In the current accounting period, the Company adopted the July 2014 amendment to IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. On January 1, 2019, the Company will adopt IFRS 16 Leases.
IFRS 9 Financial Instruments
On January 1, 2018, the Company adopted the July 2014 amendment to IFRS 9, which included guidance to assess and recognize impairment losses on financial assets based on an expected loss model. The adoption of this amendment did not have a material impact on the valuation of the Company's financial assets. Comparative periods have not been restated as the Company has elected to apply the limited exemption on transition.
The Company had previously early adopted IFRS 9 with a date of initial application of January 1, 2010 and the amendment to IFRS 9 which presented a new hedge accounting model.
IFRS 15 Revenue from Contracts with Customers
On January 1, 2018, the Company adopted IFRS 15 using the modified retrospective approach. The Company elected to use the following practical expedients:
•
IFRS 15 was only applied retrospectively to contracts which were not completed as at January 1, 2018; and
•
Modifications to any existing contracts will be assessed in aggregate with the original contract at the original date.
The Company reviewed contracts with customers for its major revenue streams and concluded that the adoption of IFRS 15 did not have a material impact on the consolidated financial statements. The adoption of IFRS 15 required the Company to expand its disclosures in the notes to the consolidated financial statements, including the disaggregation of revenue streams by product type.
As part of the review of contracts for compliance with IFRS 15, the Company performed a review of the presentation of its revenue transactions. The cost of purchases from third parties to fulfill the Company's sales commitments is presented as purchased product expense. The subsequent sales of these commodity products to customers is presented as purchased product sales. Previously, these transactions were presented on a net basis in oil and gas sales. The following table summarizes the amounts revised in the

CRESCENT POINT ENERGY CORP.
12

consolidated statements of comprehensive income for the year ended December 31, 2017:
($ millions)
 
2017

 
Oil and gas sales - previously reported
 
3,303.1

 
Purchased product sales
 
(27.0
)
 
Purchased product
 
27.8

 
Oil and gas sales - revised
 
3,303.9

 
IFRS 16 Leases
IFRS 16 was issued January 2016 and replaces IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement Contains a Lease. The standard introduces a single lessee accounting model for leases with required recognition of assets and liabilities for most leases, where the Company is acting as a lessee. The adoption of IFRS 16 for lessees eliminates the dual classification model of leases as either operating leases or finance leases, effectively treating almost all leases as finance leases. Certain short-term leases (less than 12 months) and leases of low-value assets are exempt from recognition and will continue to be treated as operating leases. There is no significant impact from the adoption of IFRS 16 for lessors as the dual classification model of leases and the accounting for lessors remains virtually unchanged. The standard is effective for fiscal years beginning on or after January 1, 2019 with early adoption permitted if the Company is also applying IFRS 15. The standard is required to be adopted either retrospectively or using a modified retrospective approach.
On January 1, 2019, the Company adopted IFRS 16 using the modified retrospective approach. The Company has applied the following practical expedients permitted under the standard. Some of these expedients are on a lease-by-lease basis and others are applicable by class of underlying assets.
•
Account for leases with a remaining term of less than 12 months at January 1, 2019 as short-term leases;
•
Account for lease payments as an expense and not recognize a right-of-use ("ROU") asset if the underlying asset is of a lower dollar value; and
•
Use of the Company's previous assessment of impairment under IAS 37 for onerous contracts instead of re-assessing the ROU asset for impairment on January 1, 2019.
The Company has completed a detailed assessment on the impact of the standard on the consolidated financial statements. A number of leases have been identified with the most significant impact being the recognition of lease obligations on operating leases for office space and the corresponding ROU assets. The lease liability is calculated as the present value of the remaining lease payments, discounted using the Company's borrowing rate on January 1, 2019. The Company will record accretion expense on the lease liability and depreciation expense on the ROU asset and the associated ROU asset will be measured as follows on a lease-by-lease basis:
•
The amount equal to the lease liability on January 1, 2019 with no impact on retained earnings: or
•
The balance on January 1, 2019 as if IFRS 16 had always been applied on the commencement of the lease, using the Company's borrowing rate on January 1, 2019 and with an impact on retained earnings calculated as the difference between the lease liability and the ROU asset values.
Adoption of the new standard will result in the recognition of lease liabilities of approximately $220.0 million.

CRESCENT POINT ENERGY CORP.
13

5.
LONG-TERM INVESTMENTS
($ millions)
2018

 
2017

 
Investments in public companies, beginning of year
65.1

 
28.3

 
Acquired through capital dispositions
112.6

 
40.2

 
Dispositions
(152.8
)
 
—

 
Unrealized loss recognized in other income (loss)
(16.2
)
 
(3.4
)
 
Investments in public companies, end of year
8.7

 
65.1

 
 
 
 
 
 
Investment in private company, beginning of year
7.5

 
7.5

 
Dispositions
(7.5
)
 
—

 
Investment in private company, end of year
—

 
7.5

 
 
 
 
 
 
Long-term investments, end of year
8.7

 
72.6

 
a)
Public companies
The Company holds common shares in publicly traded oil and gas companies. The investments are classified as financial assets at fair value through profit or loss and are fair valued at each period with the resulting gain or loss recorded in net income. At December 31, 2018, the investments were recorded at a fair value of $8.7 million which was $2.6 million more than the original cost of the investments. At December 31, 2017, the investments were recorded at a fair value of $65.1 million which was $14.4 million more than the original cost of the investments.
b)
Private company
During the year ended December 31, 2018, the Company disposed of its common shares in a private oil and gas company. The investment was classified as financial assets at fair value through profit or loss and was fair valued at each period with the resulting gain or loss recorded in net income. At December 31, 2017, the investment was recorded at a fair value of $7.5 million which was $17.5 million less than the original cost of the investment.
6.
OTHER LONG-TERM ASSETS
($ millions)
2018

 
2017

 
Reclamation fund
18.7

 
18.7

 
Other receivables
15.8

 
15.8

 
Other long-term assets
34.5

 
34.5

 
a)
Reclamation fund
The following table reconciles the reclamation fund:
($ millions)
2018

 
2017

 
Balance, beginning of year
18.7

 
22.7

 
Contributions
27.6

 
22.5

 
Expenditures
(27.6
)
 
(26.5
)
 
Balance, end of year
18.7

 
18.7

 
b)
Other receivables
At December 31, 2018, the Company had investment tax credits of $15.8 million (December 31, 2017 - $15.8 million).

CRESCENT POINT ENERGY CORP.
14

7.
EXPLORATION AND EVALUATION ASSETS
($ millions)
2018

 
2017

 
Exploration and evaluation assets at cost
2,325.0

 
2,305.1

 
Accumulated amortization
(1,852.4
)
 
(1,670.2
)
 
Net carrying amount
472.6

 
634.9

 
 
 
 
 
 
Reconciliation of movements during the year
 
 
 
 
Cost, beginning of year
2,305.1

 
2,080.7

 
Accumulated amortization, beginning of year
(1,670.2
)
 
(1,582.6
)
 
Net carrying amount, beginning of year
634.9

 
498.1

 
 
 
 
 
 
Net carrying amount, beginning of year
634.9

 
498.1

 
Acquisitions through business combinations, net
10.2

 
116.9

 
Additions
673.3

 
729.1

 
Dispositions
(7.5
)
 
(12.9
)
 
Transfers to property, plant and equipment
(705.9
)
 
(541.4
)
 
Amortization
(157.2
)
 
(134.3
)
 
Foreign exchange
24.8

 
(20.6
)
 
Net carrying amount, end of year
472.6

 
634.9

 
Exploration and evaluation ("E&E") assets consist of the Company's undeveloped land and exploration projects which are pending the determination of technical feasibility. At December 31, 2018, $472.6 million remained in E&E assets after $705.9 million was transferred to property, plant and equipment ("PP&E") following the determination of technical feasibility during the year ended December 31, 2018 (year ended December 31, 2017 - $634.9 million and $541.4 million, respectively).
Impairment test of exploration and evaluation assets
For the year ended December 31, 2018, the decrease in the value of the Company's market capitalization as compared to shareholders' equity was an indicator of impairment. As a result, impairment testing was required and the Company prepared estimates of future cash flows and fair market values of undeveloped land to determine the recoverable amount of the respective assets. As a result of these tests, the Company concluded that the estimated recoverable amounts exceeded the carrying amounts and no impairments were recorded.
8.
CAPITAL ACQUISITIONS AND DISPOSITIONS
In the year ended December 31, 2018, the Company incurred $5.1 million (year ended December 31, 2017 - $3.7 million) of transaction costs related to acquisitions through business combinations and dispositions that were recorded as general and administrative expenses.
a) Major Property Disposition
Southeast Saskatchewan asset disposition
In the year ended December 31, 2018, the Company completed the disposition of non-core assets in southeast Saskatchewan and southwest Manitoba for total proceeds of $213.4 million. This disposition was completed with full tax pools and no working capital items.
($ millions)
 
 
Exploration and evaluation
(2.4
)
 
Property, plant and equipment
(288.7
)
 
Goodwill
(6.2
)
 
Decommissioning liability
26.8

 
 
(270.5
)
 
Proceeds
 
 
Cash
112.5

 
Long-term investments
100.9

 
 
213.4

 
 
 
 
Loss on capital dispositions
(57.1
)
 

CRESCENT POINT ENERGY CORP.
15

b) Minor property acquisitions and dispositions
In the year ended December 31, 2018, the Company completed minor property acquisitions and dispositions including assets and associated liabilities held for sale at December 31, 2017 for total proceeds received of $127.1 million. These minor property acquisitions and dispositions were completed with full tax pools and no working capital items.
($ millions)
 
 
Acquisitions
 
 
Exploration and evaluation
10.2

 
Property, plant and equipment
12.2

 
Decommissioning liability
(0.4
)
 
 
22.0

 
 
 
 
Dispositions
 
 
Exploration and evaluation
(5.1
)
 
Property, plant and equipment (1)
(261.5
)
 
Goodwill
(0.6
)
 
Decommissioning liability (1)
46.1

 
 
(221.1
)
 
 
 
 
Proceeds received, net
 
 
Cash
115.4

 
Long-term investments
11.7

 
 
127.1

 
 
 
 
Loss on capital dispositions
(72.0
)
 
(1)
Includes assets and associated liabilities classified as held for sale at December 31, 2017.

CRESCENT POINT ENERGY CORP.
16

9.
PROPERTY, PLANT AND EQUIPMENT
($ millions)
2018

 
2017

 
Development and production assets
26,635.3

 
25,881.1

 
Corporate assets
114.6

 
106.4

 
Property, plant and equipment at cost
26,749.9

 
25,987.5

 
Accumulated depletion, depreciation and impairment
(16,319.7
)
 
(11,925.1
)
 
Net carrying amount
10,430.2

 
14,062.4

 
 
 
 
 
 
Reconciliation of movements during the year
 
 
 
 
Development and production assets
 
 
 
 
Cost, beginning of year
25,881.1

 
24,846.9

 
Accumulated depletion and impairment, beginning of year
(11,877.1
)
 
(10,735.5
)
 
Net carrying amount, beginning of year
14,004.0

 
14,111.4

 
 
 
 
 
 
Net carrying amount, beginning of year
14,004.0

 
14,111.4

 
Acquisitions through business combinations, net
12.2

 
220.2

 
Additions
1,083.6

 
1,211.8

 
Dispositions, net
(523.8
)
 
(332.7
)
 
Transfers from exploration and evaluation assets
705.9

 
541.4

 
Reclassified as assets held for sale
—

 
(26.4
)
 
Depletion
(1,412.4
)
 
(1,394.4
)
 
Impairment
(3,704.8
)
 
(203.6
)
 
Foreign exchange
208.4

 
(123.7
)
 
Net carrying amount, end of year
10,373.1

 
14,004.0

 
 
 
 
 
 
Cost, end of year
26,635.3

 
25,881.1

 
Accumulated depletion and impairment, end of year
(16,262.2
)
 
(11,877.1
)
 
Net carrying amount, end of year
10,373.1

 
14,004.0

 
 
 
 
 
 
Corporate assets
 
 
 
 
Cost, beginning of year
106.4

 
102.4

 
Accumulated depreciation, beginning of year
(48.0
)
 
(38.9
)
 
Net carrying amount, beginning of year
58.4

 
63.5

 
 
 
 
 
 
Net carrying amount, beginning of year
58.4

 
63.5

 
Additions
7.7

 
4.2

 
Depreciation
(9.2
)
 
(9.1
)
 
Foreign exchange
0.2

 
(0.2
)
 
Net carrying amount, end of year
57.1

 
58.4

 
 
 
 
 
 
Cost, end of year
114.6

 
106.4

 
Accumulated depreciation, end of year
(57.5
)
 
(48.0
)
 
Net carrying amount, end of year
57.1

 
58.4

 
At December 31, 2018, future development costs of $7.23 billion (December 31, 2017 - $7.00 billion) were included in costs subject to depletion.
Direct general and administrative costs capitalized by the Company during the year ended December 31, 2018 were $48.0 million (year ended December 31, 2017 - $50.4 million), including $7.7 million of share-based compensation costs (year ended December 31, 2017 - $12.0 million).

CRESCENT POINT ENERGY CORP.
17

Impairment test of property, plant and equipment
For the purposes of determining whether impairment of assets has occurred, and the extent of any impairment or its reversal, management exercises their judgment in estimating future cash flows for the recoverable amount, being the higher of fair value less costs of disposal and value in use. These key judgments include estimates about recoverable reserves, forecast benchmark commodity prices, royalties, operating costs, capital costs and discount rates. The fair value less costs of disposal and value in use estimates are categorized as Level 3 according to the IFRS 13 fair value hierarchy.
2018 Impairment
For the year ended December 31, 2018, the decrease in the value of the Company's market capitalization as compared to shareholders' equity was an indicator of impairment. As a result, impairment and recovery testing were required and the Company prepared estimates of future cash flows to determine the recoverable amount of the respective assets.
The following table outlines the forecast benchmark commodity prices and the exchange rate used in the impairment calculation of PP&E at December 31, 2018:
 
2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029 (3)

WTI ($US/bbl) (1)
58.58

64.60

68.20

71.00

72.81

74.59

76.42

78.40

79.98

81.59

83.22

Exchange Rate ($US/$Cdn)
0.757

0.782

0.797

0.803

0.807

0.808

0.808

0.808

0.808

0.808

0.808

WTI ($Cdn/bbl)
77.38

82.61

85.57

88.42

90.22

92.31

94.58

97.03

98.99

100.98

103.00

AECO ($Cdn/MMbtu) (1)
1.88

2.31

2.74

3.05

3.21

3.31

3.39

3.46

3.54

3.62

3.70

(1)
The forecast benchmark commodity prices listed above are adjusted for quality differentials, heat content, distance to market and other factors in performing the impairment tests.
(2)
Forecast benchmark commodity prices are assumed to increase by 2.0% in each year after 2029 to the end of the reserve life. Exchange rates are assumed to be constant at 0.808.
At December 31, 2018, the Company determined that the carrying amount of all CGUs exceeded their recoverable amount. The full amount of the impairments were attributed to PP&E and, as a result, impairment losses of $3.70 billion were recorded as a component of depletion, depreciation, amortization and impairment expense.
The following table summarizes the impairment expense for the year ended December 31, 2018 by CGU:
CGU
($ millions, except %)
Operating segment
Recoverable amount

Discount rate

Impairment

Impairment, net of tax

Southeast Saskatchewan
Canada
5,250.6

15.00
%
1,782.1

1,300.9

Utah
U.S.
931.7

18.00
%
873.5

658.4

Southwest Saskatchewan
Canada
1,975.2

15.00
%
549.4

401.1

Southern Alberta (1)
Canada
872.7

15.00
%
404.8

295.5

Northern U.S.
U.S.
878.7

15.00
%
83.8

63.2

Northern Alberta
Canada
3.9

15.00
%
11.2

8.2

Total impairment (2)
9,912.8

 
3,704.8

2,727.3

(1)
At September 30, 2018, the Company classified certain non-core assets as held for sale. Immediately before classifying the assets as held for sale, the Company conducted a review of the assets' recoverable amounts and recorded an impairment loss of $14.1 million related to PP&E.
(2)
At December 31, 2018, accumulated after tax impairment losses, net of depletion had no impairment loss been recognized in prior periods for the Canada and U.S. operating segments were $3.29 billion and $879.9 million, respectively.
Impairments were recognized in all CGUs largely due to the increase in discount rates used in impairment testing, reflecting the higher industry weighted average cost of capital at December 31, 2018 compared to December 31, 2017 and current economic factors. The increased industry weighted average cost of capital is the result of increased volatility in the Canadian energy sector due to limited crude oil market access and the current regulatory environment, causing industry participants to have limited access to new capital.


CRESCENT POINT ENERGY CORP.
18

Changes in any of the key judgments, such as a revision in reserves, changes in forecast benchmark commodity prices, foreign exchange rates, capital or operating costs would impact the recoverable amounts of assets and any recoveries or impairment charges would affect net income. The following sensitivities show the resulting impact on income before tax of the changes in discount rate and forecast benchmark commodity price estimates at December 31, 2018, with all other variables held constant:
CGU
($ millions)
Discount Rate
 
Commodity Prices
 
Increase 1%

 
Decrease 1%

 
Increase 5%

 
Decrease 5%

 
Southeast Saskatchewan
(350.2
)
 
385.5

 
640.6

 
(639.8
)
 
Utah
(46.8
)
 
53.8

 
140.7

 
(111.0
)
 
Southwest Saskatchewan
(135.8
)
 
149.7

 
240.9

 
(240.6
)
 
Southern Alberta
(70.0
)
 
77.2

 
133.8

 
(132.5
)
 
Northern U.S.
(57.6
)
 
65.6

 
83.8

 
(101.0
)
 
Northern Alberta
(0.4
)
 
0.5

 
1.0

 
(1.0
)
 
Increase (decrease)
(660.8
)
 
732.3

 
1,240.8

 
(1,225.9
)

2017 Impairment and recovery
For the year ended December 31, 2017, the decrease in near-term forecast benchmark commodity prices as compared to December 31, 2016 and the value of the Company's market capitalization as compared to net asset value were indicators of impairment. In addition, the significant changes to U.S. tax legislation in December 2017 including, among other things, a significant decrease to the federal corporate income tax rate, was an indicator of recovery in the U.S. operating segment. As a result, impairment and recovery testing were required and the Company prepared estimates of future cash flows to determine the recoverable amount of the respective assets.
The following table outlines the forecast benchmark commodity prices and the exchange rate used in the impairment calculation of PP&E at December 31, 2017:
 
2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028 (2)

WTI ($US/bbl) (1)
55.00

65.00

70.00

73.00

74.46

75.95

77.47

79.02

80.60

82.21

83.85

Exchange Rate ($US/$Cdn)
0.790

0.820

0.850

0.850

0.850

0.850

0.850

0.850

0.850

0.850

0.850

WTI ($Cdn/bbl)
69.62

79.27

82.35

85.88

87.60

89.35

91.14

92.96

94.82

96.72

98.65

AECO ($Cdn/MMbtu) (1)
2.85

3.11

3.65

3.80

3.95

4.05

4.15

4.25

4.36

4.46

4.57

(1)
The forecast benchmark commodity prices listed above are adjusted for quality differentials, heat content, distance to market and other factors in performing the impairment tests.
(2)
Forecast benchmark commodity prices are assumed to increase by 2.0% in each year after 2028 to the end of the reserve life. Exchange rates are assumed to be constant at 0.850.
At December 31, 2017, the Company determined that the carrying amount of the Southeast Saskatchewan, Southwest Saskatchewan and Southern Alberta CGUs exceeded their recoverable amount. In addition, the recoverable amount of the Northern U.S. and Utah CGUs exceeded their carrying amount. The full amount of the impairments and recoveries were attributed to PP&E and, as a result, net impairment losses of $203.6 million were recorded as a component of depletion, depreciation, amortization and impairment expense.
The following table summarizes the impairment and recovery for the year ended December 31, 2017 by CGU:
CGU
($ millions, except %)
Operating segment
Recoverable amount

Discount rate

(Impairment) / Recovery

(Impairment) / Recovery,
net of tax

Southeast Saskatchewan
Canada
6,946.2

10.25
%
(281.7
)
(206.1
)
Southwest Saskatchewan
Canada
2,412.6

10.25
%
(164.1
)
(120.0
)
Southern Alberta
Canada
1,217.9

11.00
%
(109.6
)
(80.2
)
Northern U.S.
U.S.
976.5

10.50
%
87.9

54.6

Utah
U.S.
1,482.4

10.25
%
263.9

164.0

Total impairment
13,035.6

 
(203.6
)
(187.7
)
The impairments in the Southeast Saskatchewan, Southwest Saskatchewan and Southern Alberta CGUs were largely a result of the decrease in near-term forecast benchmark commodity prices and the increase in discount rates, partially offset by the positive impact of technical and development reserve additions. The recoveries in the Northern U.S. and Utah CGUs were largely a result of the positive impact of technical and development reserve additions and the positive impact of the changes to U.S. tax legislation, partially offset by the decrease in near-term forecast benchmark commodity prices and the increase in discount rates.

CRESCENT POINT ENERGY CORP.
19

The following sensitivities show the resulting impact on income before tax of the changes in discount rate and forecast benchmark commodity price estimates at December 31, 2017, with all other variables held constant:
CGU
($ millions)
Discount Rate
 
Commodity Prices
 
Increase 1%

 
Decrease 1%

 
Increase 5%

 
Decrease 5%

 
Southeast Saskatchewan
(559.4
)
 
627.7

 
831.9

 
(839.6
)
 
Southwest Saskatchewan
(209.6
)
 
235.6

 
306.0

 
(305.7
)
 
Southern Alberta
(114.3
)
 
128.1

 
176.7

 
(175.8
)
 
Northern U.S.
—

 
—

 
—

 
—

 
Utah
(103.6
)
 
116.4

 
174.9

 
(173.6
)
 
Increase (decrease)
(986.9
)
 
1,107.8

 
1,489.5

 
(1,494.7
)
 
10.
GOODWILL
($ millions)
2018

 
2017

 
Goodwill, beginning of year
251.9

 
251.9

 
Southeast Saskatchewan asset disposition
(6.2
)
 
—

 
Minor property dispositions
(0.6
)
 
—

 
Transferred to assets held for sale (1)
(1.1
)
 
—

 
Goodwill, end of year
244.0

 
251.9

 
(1)
At September 30, 2018, the Company classified certain non-core assets in the Canadian operating segment as held for sale. Immediately before classifying the assets as held for sale, the Company conducted a review of the assets' recoverable amounts and recorded an impairment loss of $1.1 million related to goodwill. These assets have been disposed of prior to December 31, 2018.
Goodwill has been assigned to the Canadian operating segment.
Impairment test of goodwill
The impairment tests of goodwill compared the recoverable amount of the Company's PP&E and E&E to the carrying amount of the combined PP&E, E&E and goodwill at December 31, 2018 and December 31, 2017. As a result of these tests, the Company concluded that the estimated recoverable amounts exceeded the carrying amounts and no impairments were recorded. The recoverable amount estimates is categorized as Level 3 according to the IFRS 13 fair value hierarchy. Refer to Note 9 - "Property, Plant and Equipment" for a description of the key input estimates and the methodology used in the determination of the estimated recoverable amount related to goodwill.
11.
OTHER CURRENT LIABILITIES
($ millions)
2018

 
2017

 
Long-term compensation liability
6.5

 
17.7

 
Lease inducement
3.4

 
3.4

 
Onerous contracts provision
2.6

 
2.9

 
Decommissioning liability
26.9

 
33.7

 
Other current liabilities
39.4

 
57.7

 
12.
LONG-TERM DEBT
The following table reconciles long-term debt:
($ millions)
2018

 
2017

 
Bank debt
1,982.1

 
2,179.0

 
Senior guaranteed notes (1)
2,294.6

 
1,932.0

 
Long-term debt
4,276.7

 
4,111.0

 
Long-term debt due within one year
99.8

 
63.8

 
Long-term debt due beyond one year
4,176.9

 
4,047.2

 
(1)
The Company entered into cross currency swaps and a foreign exchange swap concurrent with the issuance of the US dollar senior guaranteed notes to fix the US dollar amount of the notes for the purpose of principal repayment at Canadian dollar notional amounts. At December 31, 2018, the total notional principal due on the maturity of the senior guaranteed notes was $1.89 billion (December 31, 2017 - $1.67 billion) of which $73.7 million (December 31, 2017 - $50.3 million) was due within one year.

CRESCENT POINT ENERGY CORP.
20

Bank debt
The Company has combined credit facilities of $3.60 billion, including a $3.50 billion syndicated unsecured credit facility with fourteen banks and a $100.0 million unsecured operating credit facility with one Canadian chartered bank. The current maturity date of the syndicated unsecured credit facility and the unsecured operating credit facility is June 10, 2021. Both of these facilities constitute revolving credit facilities and are extendible annually.
The credit facilities bear interest at the applicable market rate plus a margin based on a sliding scale ratio of the Company's senior debt to earnings before interest, taxes, depletion, depreciation, amortization and impairment, adjusted for certain non-cash items including unrealized derivatives, unrealized foreign exchange, equity settled share-based compensation expense and accretion ("adjusted EBITDA").
The credit facilities and senior guaranteed notes have covenants which restrict the Company's ratio of senior debt to adjusted EBITDA to a maximum of 3.5:1.0, the ratio of total debt to adjusted EBITDA to a maximum of 4.0:1.0 and the ratio of senior debt to capital, adjusted for certain non-cash items as noted above, to a maximum of 0.55:1.0. The Company was in compliance with all debt covenants at December 31, 2018.
The Company had letters of credit in the amount of $8.0 million outstanding at December 31, 2018 (December 31, 2017 - $7.5 million).
The Company manages its credit facilities through a combination of bankers' acceptance loans, US dollar London Inter-bank Offered Rate ("LIBOR") loans and interest rate swaps.
Senior guaranteed notes
The Company has closed private offerings of senior guaranteed notes raising total gross proceeds of US$1.48 billion and Cdn$277.0 million. The notes are unsecured and rank pari passu with the Company's bank credit facilities and carry a bullet repayment on maturity. The senior guaranteed notes have financial covenants similar to those of the combined credit facilities described above. The terms, rates, amounts due on maturity and carrying amounts of the Company's outstanding senior guaranteed notes are detailed below:
Principal
($ millions)
Coupon Rate

Principal Due on Maturity (1)
(Cdn$ millions)

Interest Payment Dates
Maturity Date
Financial statement carrying value
2018

 
2017

 
US$31.0
4.58
%
—

October 14 and April 14
April 14, 2018
—

 
38.8

 
US$20.0
2.65
%
—

December 12 and June 12
June 12, 2018
—

 
25.0

 
Cdn$7.0
4.29
%
7.0

November 22 and May 22
May 22, 2019
7.0

 
7.0

 
US$68.0
3.39
%
66.7

November 22 and May 22
May 22, 2019
92.8

 
85.1

 
US$155.0
6.03
%
158.3

September 24 and March 24
March 24, 2020
211.5

 
194.0

 
Cdn$50.0
5.53
%
50.0

October 14 and April 14
April 14, 2021
50.0

 
50.0

 
US$82.0
5.13
%
79.0

October 14 and April 14
April 14, 2021
111.9

 
102.7

 
US$52.5
3.29
%
56.3

December 20 and June 20
June 20, 2021
71.6

 
65.7

 
Cdn$25.0
4.76
%
25.0

November 22 and May 22
May 22, 2022
25.0

 
25.0

 
US$200.0
4.00
%
199.1

November 22 and May 22
May 22, 2022
272.9

 
250.4

 
US$61.5
4.12
%
80.3

October 11 and April 11
April 11, 2023
83.9

 
—

 
Cdn$80.0
3.58
%
80.0

October 11 and April 11
April 11, 2023
80.0

 
—

 
Cdn$10.0
4.11
%
10.0

December 12 and June 12
June 12, 2023
10.0

 
10.0

 
US$270.0
3.78
%
274.7

December 12 and June 12
June 12, 2023
368.4

 
338.0

 
Cdn$40.0
3.85
%
40.0

December 20 and June 20
June 20, 2024
40.0

 
40.0

 
US$257.5
3.75
%
276.4

December 20 and June 20
June 20, 2024
351.4

 
322.4

 
US$82.0
4.30
%
107.0

October 11 and April 11
April 11, 2025
111.9

 
—

 
Cdn$65.0
3.94
%
65.0

October 22 and April 22
April 22, 2025
65.0

 
65.0

 
US$230.0
4.08
%
291.1

October 22 and April 22
April 22, 2025
313.9

 
287.9

 
US$20.0
4.18
%
25.3

October 22 and April 22
April 22, 2027
27.4

 
25.0

 
Senior guaranteed notes
1,891.2

 
 
2,294.6

 
1,932.0

 
Senior guaranteed notes due within one year
99.8

 
63.8

 
Senior guaranteed notes due beyond one year
2,194.8

 
1,868.2

 
(1)
Includes underlying derivatives which manage the Company's foreign exchange exposure on its US dollar senior guaranteed notes. The Company considers this to be the economic amount due at maturity instead of the financial statement carrying amount.

CRESCENT POINT ENERGY CORP.
21

Concurrent with the issuance of US$1.45 billion senior guaranteed notes, the Company entered into cross currency swaps ("CCS") to manage the Company's foreign exchange risk. The CCS fix the US dollar amount of the notes for purposes of interest and principal repayments at a notional amount of $1.58 billion. Concurrent with the issuance of US$30.0 million senior guaranteed notes, the Company entered a foreign exchange swap which fixed the principal repayment at a notional amount of $32.2 million. See Note 25 - “Financial Instruments and Derivatives” for additional information.
13.
OTHER LONG-TERM LIABILITIES
($ millions)
2018

 
2017

 
Long-term compensation liability (1)
3.5

 
5.2

 
Lease inducement (2)
36.4

 
40.0

 
Onerous contracts provision (3) (4)
8.4

 
8.8

 
Other long-term liabilities
48.3

 
54.0

 
(1)
Long-term compensation liability relates to share-based compensation. See Note 23 - "Share-based Compensation" for additional information.
(2)
The Company's lease inducement is associated with the building lease for Crescent Point's corporate office. This non-cash liability is amortized on a straight-line basis over the term of the lease to June 2030.
(3)
Onerous contracts provision is related to the estimated unrecoverable portion of building leases.
(4)
For the year ended December 31, 2018, the Company recorded $0.9 million of accretion expense related to the onerous contract provision (year ended December 31, 2017 - $0.6 million).
14.
DECOMMISSIONING LIABILITY
The following table reconciles the decommissioning liability:
($ millions)
2018

 
2017

 
Decommissioning liability, beginning of year
1,344.2

 
1,314.4

 
Liabilities incurred
38.6

 
39.9

 
Liabilities acquired through capital acquisitions
0.4

 
25.1

 
Liabilities disposed through capital dispositions
(68.3
)
 
(66.5
)
 
Liabilities settled
(25.3
)
 
(25.1
)
 
Revaluation of acquired decommissioning liabilities (1)
0.6

 
42.8

 
Change in estimated future costs
(79.9
)
 
2.8

 
Change in discount rate
(20.2
)
 
(7.2
)
 
Accretion expense
30.6

 
30.3

 
Reclassified as liabilities associated with assets held for sale
—

 
(4.6
)
 
Foreign exchange
10.0

 
(7.7
)
 
Decommissioning liability, end of year
1,230.7

 
1,344.2

 
Expected to be incurred within one year
26.9

 
33.7

 
Expected to be incurred beyond one year
1,203.8

 
1,310.5

 
(1)
These amounts relate to the revaluation of acquired decommissioning liabilities at the end of the period using a risk-free discount rate. At the date of acquisition, acquired decommissioning liabilities are fair valued.
Upon retirement of its oil and gas assets, the Company anticipates substantial costs associated with decommissioning. The total future decommissioning liability was estimated by management based on the Company’s net ownership in all wells and facilities. This includes all estimated costs to reclaim and abandon the wells and facilities and the estimated timing of the costs to be incurred in future periods. The Company has estimated the net present value of its total decommissioning liability to be $1.23 billion at December 31, 2018 (December 31, 2017 - $1.34 billion) based on total estimated undiscounted cash flows to settle the obligation of $1.29 billion (December 31, 2017 - $1.41 billion). These obligations are expected to be settled through 2053, with the majority expected after 2039. The estimated cash flows have been discounted using a risk free rate of approximately 2.25 percent and an inflation rate of 2 percent (December 31, 2017 - approximately 2.25 percent and 2 percent, respectively).

CRESCENT POINT ENERGY CORP.
22

15.
SHAREHOLDERS' CAPITAL
Crescent Point has an unlimited number of common shares authorized for issuance.
 
2018
 
 
2017
 
 


Number of
shares

 
Amount
($ millions)

 
Number of
shares

 
Amount
($ millions)

 
Common shares, beginning of year
545,794,384

 
16,745.7

 
541,742,592

 
16,656.1

 
Issued on redemption of restricted shares (1)
4,357,177

 
57.3

 
4,051,792

 
89.6

 
Common shares, end of year
550,151,561

 
16,803.0

 
545,794,384

 
16,745.7

 
Cumulative share issue costs, net of tax
—

 
(256.1
)
 
—

 
(256.1
)
 
Total shareholders’ capital, end of year
550,151,561

 
16,546.9

 
545,794,384

 
16,489.6

 
(1)
The amount of shares issued on redemption of restricted shares is net of employee withholding taxes.
Normal Course Issuer Bid ("NCIB")    
On January 23, 2019, the Company announced the approval by the Toronto Stock Exchange of its notice to implement a NCIB. The NCIB allows the Company to purchase, for cancellation, up to 38,424,678 common shares, or seven percent of the Company's public float, as at January 14, 2019. The NCIB commenced on January 25, 2019 and is due to expire on January 24, 2020.
As of the date of this report, the Company has purchased, for cancellation, 1,284,400 common shares for total consideration of $5.0 million.
16.
DEFICIT
($ millions)
2018

 
2017

 
Accumulated earnings (deficit)
(2,980.6
)
 
(363.7
)
 
Accumulated gain on shares issued pursuant to DRIP (1) and SDP (2)
8.4

 
8.4

 
Accumulated tax effect on redemption of restricted shares
12.1

 
12.1

 
Accumulated dividends
(7,607.1
)
 
(7,408.6
)
 
Deficit
(10,567.2
)
 
(7,751.8
)
 
(1)
Premium Dividend TM and Dividend Reinvestment Plan.
(2)
Share Dividend Plan.
17.
CAPITAL MANAGEMENT
The Company’s capital structure is comprised of shareholders’ equity, long-term debt and adjusted working capital. The balance of each of these items is as follows:
($ millions)
2018

 
2017

 
Long-term debt
4,276.7

 
4,111.0

 
Adjusted working capital deficiency (1)
208.2

 
133.3

 
Unrealized foreign exchange on translation of US dollar long-term debt
(473.6
)
 
(219.4
)
 
Net debt
4,011.3

 
4,024.9

 
Shareholders’ equity
6,612.8

 
9,162.9

 
Total capitalization
10,624.1

 
13,187.8

 
(1)
Adjusted working capital deficiency is calculated as accounts payable and accrued liabilities, dividends payable and long-term compensation liability, less cash, accounts receivable, prepaids and deposits and long-term investments.
The following table reconciles cash flow from operating activities to adjusted funds flow from operations for the years ended December 31, 2018 and December 31, 2017:
($ millions)
2018

 
2017

 
Cash flow from operating activities
1,748.0

 
1,718.7

 
Changes in non-cash working capital
(37.2
)
 
(18.7
)
 
Transaction costs
5.1

 
3.7

 
Decommissioning expenditures
25.3

 
25.1

 
Adjusted funds flow from operations
1,741.2

 
1,728.8

 


CRESCENT POINT ENERGY CORP.
23

Crescent Point's objective for managing capital is to maintain a strong balance sheet and capital base to provide financial flexibility, position the Company to fund future development projects and provide returns to shareholders.
Crescent Point manages and monitors its capital structure and short-term financing requirements using a measure not defined in IFRS, the ratio of net debt to adjusted funds flow from operations. Net debt is calculated as long-term debt plus accounts payable and accrued liabilities, dividends payable and long-term compensation liability, less cash, accounts receivable, prepaids and deposits and long-term investments, excluding the unrealized foreign exchange on translation of US dollar long-term debt. Adjusted funds flow from operations is calculated as cash flow from operating activities before changes in non-cash working capital, transaction costs and decommissioning expenditures. Net debt to adjusted funds flow from operations is used to measure the Company's overall debt position and to measure the strength of the Company's balance sheet. Crescent Point's objective is to manage this metric to be well positioned to execute its business objectives during periods of volatile commodity prices. Crescent Point monitors this ratio and uses this as a key measure in making decisions regarding financing, capital spending and dividend levels. The Company's net debt to adjusted funds flow from operations ratio at December 31, 2018 was 2.3 times (December 31, 2017 - 2.3 times).
Crescent Point strives to fund its capital expenditures, decommissioning expenditures and dividends over time by managing risks associated with the oil and gas industry. To accomplish this, the Company aims to maintain a conservative balance sheet with significant liquidity and unutilized lines of credit, manages its exposure to fluctuating interest rates and foreign exchange rates on its long-term debt, and actively hedges commodity prices through its risk management program. See Note 25 - "Financial Instruments and Derivatives" for additional information regarding the Company's derivative contracts.
Crescent Point is subject to certain financial covenants on its credit facilities and senior guaranteed notes agreements and was in compliance with all financial covenants as at December 31, 2018. See Note 12 - "Long-term Debt" for additional information regarding the Company's financial covenant requirements.
18.
OIL AND GAS SALES
The following table reconciles oil and gas sales by country and product type:
($ millions) (1)
2018

 
2017

 
Canada
 
 
 
 
Crude oil sales
2,743.6

 
2,581.9

 
NGL sales
202.1

 
158.2

 
Natural gas sales
54.3

 
70.6

 
Total Canada
3,000.0

 
2,810.7

 
U.S.
 
 
 
 
Crude oil sales
811.7

 
435.3

 
NGL sales
41.2

 
27.0

 
Natural gas sales
34.6

 
30.9

 
Total U.S.
887.5

 
493.2

 
Total oil and gas sales
3,887.5

 
3,303.9

 
(1)
Oil and gas sales are reported before realized derivatives.
19.
DERIVATIVE GAINS (LOSSES)
($ millions)
2018

 
2017

 
Realized gains (losses)
(259.8
)
 
101.2

 
Unrealized gains (losses)
439.4

 
(163.6
)
 
Derivative gains (losses)
179.6

 
(62.4
)
 
20.
OTHER INCOME (LOSS)
($ millions)
2018

 
2017

 
Long-term investments
(15.5
)
 
(3.4
)
 
Gain (loss) on capital dispositions
(129.1
)
 
31.1

 
Dividend income
1.1

 
—

 
Other gain
—

 
0.1

 
Other income (loss)
(143.5
)
 
27.8

 

CRESCENT POINT ENERGY CORP.
24

21.
FOREIGN EXCHANGE GAIN (LOSS)
($ millions)
2018

 
2017

 
Realized gain (loss)
 
 
 
 
CCS - US dollar long-term debt maturities and interest payments
88.3

 
(39.3
)
 
US dollar long-term debt maturities
(70.3
)
 
54.6

 
Other
4.3

 
(0.6
)
 
Unrealized gain (loss)
 
 
 
 
Translation of US dollar long-term debt
(254.2
)
 
201.2

 
Other
(2.1
)
 
(0.2
)
 
Foreign exchange gain (loss)
(234.0
)
 
215.7

 
22.
INCOME TAXES
The provision for income taxes is as follows:
($ millions)
 
2018

 
2017

 
Current tax:
 
 
 
 
 
Canada
—

 
(1.9
)
 
 
Luxembourg
0.3

 
0.2

 
Current tax expense (recovery)
0.3

 
(1.7
)
 
Deferred tax:
 
 
 
 
 
Canada
(690.5
)
 
(99.2
)
 
 
United States
(248.3
)
 
201.3

 
Deferred tax expense (recovery)
(938.8
)
 
102.1

 
Income tax expense (recovery)
(938.5
)
 
100.4

 
The following table reconciles income taxes calculated at the Canadian statutory rate with the recorded income taxes:
($ millions)
2018

 
2017

 
Net income (loss) before tax
(3,555.4
)
 
(23.6
)
 
Statutory income tax rate
27.00
%
 
26.85
%
 
Expected provision for income taxes
(960.0
)
 
(6.3
)
 
Effect of change in corporate tax rates
—

 
106.9

 
Effect of tax rates in foreign jurisdictions
13.9

 
22.9

 
Effect of restricted share bonus plan
1.8

 
(2.7
)
 
Effect of change in recognition of deferred tax assets
(1.1
)
 
(14.7
)
 
Effect of non-taxable capital (gains) losses
0.6

 
(1.1
)
 
Non-deductible disposition of goodwill
2.1

 
—

 
Other
4.2

 
(4.6
)
 
Income tax recovery
(938.5
)
 
100.4

 
The statutory combined federal and provincial income tax rate decreased from 27.00% in 2016 to 26.85% in 2017 primarily due to the decrease in the Saskatchewan corporate tax rate from 12.00% to 11.50%, effective July 1, 2017. The Saskatchewan corporate tax rate was subsequently changed back to 12.00% effective January 1, 2018, resulting in an increase in the combined federal and provincial income tax rate from 26.85% in 2017 to 27.00% in 2018.
On December 22, 2017, the United States government enacted the Tax Cuts and Jobs Act which implemented significant changes to the U.S. tax legislation including, among other changes, a decrease to the federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the Company reduced its deferred income tax asset by $107.5 million at December 31, 2017 and recognized a corresponding deferred income tax expense.

CRESCENT POINT ENERGY CORP.
25

The composition of net deferred income tax asset (liability) is as follows:
($ millions)
2018

 
2017

 
Deferred income tax assets
602.3

 
192.8

 
Deferred income tax liabilities
—

 
(550.6
)
 
Net deferred income tax assets (liabilities)
602.3

 
(357.8
)
 
The net deferred income tax assets (liabilities) are expected to be settled in the following periods:
($ millions)
2018

 
2017

 
Deferred income tax:
 
 
 
 
To be settled within one year
(57.9
)
 
29.1

 
To be settled beyond one year
660.2

 
(386.9
)
 
Deferred income tax
602.3

 
(357.8
)
 
The movement in deferred income tax assets (liabilities) are as follows:
($ millions)
At January 1,
 2018

 
(Charges) / credits due to acquisitions & other

 
(Charged) / credited to earnings

 
At December 31, 2018

 
Deferred income tax assets:
 
 
 
 
 
 
 
 
Decommissioning liability
361.3

 
—

 
(31.7
)
 
329.6

 
Income tax losses carried forward
649.5

 
—

 
268.6

 
918.1

 
Debt financing costs
—

 
—

 
—

 
—

 
Share issue costs
10.2

 
—

 
(4.9
)
 
5.3

 
Risk management contracts
33.5

 
—

 
(33.5
)
 
—

 
Other
22.2

 
21.3

 
(27.2
)
 
16.3

 
 
1,076.7

 
21.3

 
171.3

 
1,269.3

 
Deferred income tax liabilities:
 
 
 
 
 
 
 
 
Property, plant and equipment
(1,417.5
)
 
—

 
783.6

 
(633.9
)
 
Risk management contracts
(17.0
)
 
—

 
(16.1
)
 
(33.1
)
 
 
(1,434.5
)
 
—

 
767.5

 
(667.0
)
 
Net deferred income tax assets (liabilities)
(357.8
)
 
21.3

 
938.8

 
602.3

 
($ millions)
At January 1,
 2017

 
(Charges) / credits due to acquisitions & other

 
(Charged) / credited to earnings

 
At December 31, 2017

 
Deferred income tax assets:
 
 
 
 
 
 
 
 
Decommissioning liability
361.8

 
—

 
(0.5
)
 
361.3

 
Income tax losses carried forward
632.4

 
—

 
17.1

 
649.5

 
Debt financing costs
4.8

 
—

 
(4.8
)
 
—

 
Share issue costs
15.3

 
0.1

 
(5.2
)
 
10.2

 
Risk management contracts
18.3

 
—

 
15.2

 
33.5

 
Other
16.6

 
(26.7
)
 
32.3

 
22.2

 
 
1,049.2


(26.6
)
 
54.1

 
1,076.7

 
Deferred income tax liabilities:
 
 
 
 
 
 
 
 
Property, plant and equipment
(1,286.7
)
 
—

 
(130.8
)
 
(1,417.5
)
 
Risk management contracts
8.4

 
—

 
(25.4
)
 
(17.0
)
 
 
(1,278.3
)
 
—

 
(156.2
)
 
(1,434.5
)
 
Net deferred income tax liabilities
(229.1
)
 
(26.6
)
 
(102.1
)
 
(357.8
)
 

CRESCENT POINT ENERGY CORP.
26

The approximate amounts of tax pools available as at December 31, 2018 and 2017 are as follows:
($ millions)
2018

 
2017

 
Tax pools:
 
 
 
 
Canada
8,389.0

 
8,746.2

 
United States
3,830.0

 
3,287.6

 
Total
12,219.0

 
12,033.8

 
Deferred income tax assets have been recognized in both Canada and the U.S. as it is probable given the Company's anticipated future earnings that the tax pools will be utilized in the future against future profits. The above tax pools include estimated Canadian non-capital losses carried forward of $1.90 billion (December 31, 2017 - $1.40 billion) that expire in the years 2026 through 2038, and U.S. net operating losses of $1.73 billion (December 31, 2017 - $1.20 billion) which expire in the years 2024 through 2037. A deferred income tax asset has not been recognized for U.S. net operating losses of $89.7 million (December 31, 2017 - $82.3 million) or for other temporary differences of $56.2 million (December 31, 2017 - $33.2 million) as there is not sufficient certainty regarding future utilization.
At December 31, 2017, a deferred tax asset has not been recognized in respect of certain unrealized capital losses and capital losses carried forward for Canadian tax purposes in the amount of $1.2 million. Recognition is dependent on the realization of future taxable capital gains.
A deferred tax asset has not been recognized in respect of temporary differences associated with investments in subsidiaries as it is not likely that the temporary differences will reverse in the foreseeable future. The deductible temporary differences associated with investments in subsidiaries is approximately $1.3 billion (December 31, 2017 - $555.2 million).
The Company received notices of reassessment from the Canada Revenue Agency in 2014 and 2015 disallowing $149.3 million of tax pools and $12.6 million of investment tax credits relating to an acquired entity. The Company has filed notices of objections in response to these reassessments and management believes that it will be successful in defending its positions. Therefore, no provision for the potential income tax liability was recorded at December 31, 2018 and December 31, 2017.
23.
SHARE-BASED COMPENSATION
Restricted Share Bonus Plan
The Company has a Restricted Share Bonus Plan pursuant to which the Company may grant restricted shares to directors, officers, employees and consultants. The restricted shares vest on terms up to three years from the grant date as determined by the Board of Directors. Restricted shares are settled upon vesting, at the Company's discretion, in common shares or cash. The expense is recognized over the service period and is included in shareholder's equity.
Performance Share Unit Plan
The Company has a Performance Share Unit ("PSU") Plan for designated employees. The PSUs vest on terms up to three years from the grant date as determined by the Board of Directors. PSUs are settled in cash upon vesting based on the prevailing Crescent Point share price, accrued dividends and performance multipliers. The expense is recognized over the service period and is included in long-term compensation liability.
Deferred Share Unit Plan
The Company has a Deferred Share Unit ("DSU") Plan for directors. Each DSU vests on the date of the grant, however, the settlement of the DSU occurs following a change of control or when the individual ceases to be a director of the Company. DSUs are settled in cash based on the prevailing Crescent Point share price. The expense is recognized at fair value at each period end and is included in long-term compensation liability.
The following table reconciles the number of restricted shares, PSUs and DSUs for the year ended December 31, 2018:
 
Restricted Shares

 
Performance Share Units (1)

 
Deferred Share Units

 
Balance, beginning of year
3,589,024

 
4,460,046

 
229,470

 
Granted
5,219,156

 
1,238,518

 
118,999

 
Redeemed
(4,557,768
)
 
(2,839,865
)
 
(46,855
)
 
Forfeited
(1,008,728
)
 
(612,385
)
 
—

 
Balance, end of year
3,241,684

 
2,246,314

 
301,614

 
(1)
Based on underlying units before any effect of performance multipliers.

CRESCENT POINT ENERGY CORP.
27

The following table reconciles the number of restricted shares, PSUs and DSUs for the year ended December 31, 2017:
 
Restricted Shares

 
Performance Share Units (1)

 
Deferred Share Units

 
Balance, beginning of year
5,188,358

 
—

 
204,653

 
Granted
3,424,610

 
4,460,046

 
70,609

 
Redeemed
(4,195,754
)
 
—

 
(45,792
)
 
Forfeited
(235,162
)
 
—

 
—

 
Modified to PSUs
(593,028
)
 
—

 
—

 
Balance, end of year
3,589,024

 
4,460,046

 
229,470

 
(1)
Based on underlying units before any effect of performance multipliers.
Stock Option Plan
In May 2018, the Company approved a Stock Option Plan for designated employees. The Options have a maximum term of seven years and vest on terms as determined by the Board of Directors. Share-based compensation expense is determined based on the estimated fair value of the stock options on the date of the grant. Upon vest, the stock option holder may either exercise their stock options to purchase one common share per option at the exercise price or, at the Company's discretion, surrender their stock options for a cash payment in an amount equal to the aggregate positive difference, if any, between the market price and the exercise price of the number of common shares associated with the stock options surrendered. Alternatively, the stock option holder may also, at the Company's discretion, surrender their stock options for common shares having a value equivalent to the cash payment.
The following table reconciles the number of stock options and the related weighted average exercise prices for the year ended December 31, 2018:
 
Stock Options (number of units)

 
Weighted average exercise price ($)

 
Balance, beginning of year
—

 
—

 
Granted
3,158,490

 
10.04

 
Exercised
—

 
—

 
Forfeited
(1,110,375
)
 
10.06

 
Balance, end of year
2,048,115

 
10.03

 

The following table summarizes information regarding stock options outstanding as at December 31, 2018:
Number of stock options outstanding

 
Weighted average exercise price per share for options outstanding ($)

 
Vest year
 
Weighted average remaining term (years)
 
Number of stock options exercisable

 
Weighted average exercise price per share for options exercisable ($)

 
621,323

 
10.04

 
2019
 
6.03
 
—

 
—

 
356,698

 
10.02

 
2020
 
6.05
 
—

 
—

 
356,698

 
10.02

 
2021
 
6.05
 
—

 
—

 
713,396

 
10.02

 
2022
 
6.05
 
—

 
—

 
The Company estimates the fair value of stock options on the date of the grant using a Black-Scholes option pricing model. The following weighted average assumptions were used to estimate the fair value of the stock options at their grant date:
 
2018

 
2017

 
Grant date share price ($)
10.04

 
—

 
Exercise price ($)
10.04

 
—

 
Expected annual dividends ($)
0.36

 
—

 
Expected volatility (%)
35.9
%
 
—

 
Risk-free interest rate (%)
2.00
%
 
—

 
Expected life of stock option
4.9 years

 
—

 
Fair value per stock option ($)
2.34

 
—

 
For the year ended December 31, 2018, the Company calculated total share-based compensation of $53.7 million (year ended December 31, 2017 - $74.0 million), net of estimated forfeitures, of which $7.7 million was capitalized (year ended December 31, 2017 - $12.0 million).
At December 31, 2018, the current portion of long-term compensation liability of $6.5 million was included in other current liabilities (December 31, 2017 - $17.7 million) and $3.5 million was included in other long-term liabilities (December 31, 2017 - $5.2 million).

CRESCENT POINT ENERGY CORP.
28

24.
PER SHARE AMOUNTS
The following table summarizes the weighted average shares used in calculating net income per share:
 
2018

 
2017

 
Weighted average shares – basic
549,109,960

 
545,162,580

 
Dilutive impact of share-based compensation
—

 
—

 
Weighted average shares – diluted (1)
549,109,960

 
545,162,580

 
(1)
Excludes the impact of 1,086,922 weighted average shares related to share-based compensation that were anti-dilutive for the year ended December 31, 2018 (year ended December 31, 2017 - 1,603,575).
25.
FINANCIAL INSTRUMENTS AND DERIVATIVES
The Company's financial assets and liabilities are comprised of cash, accounts receivable, long-term investments, reclamation fund, derivative assets and liabilities, accounts payable and accrued liabilities, dividends payable and long-term debt.
Crescent Point's derivative assets and liabilities are transacted in active markets. Crescent Point's long-term investments are transacted in active and non-active markets. The Company classifies the fair value of these transactions according to the following fair value hierarchy based on the amount of observable inputs used to value the instrument:
•
Level 1 - Values are based on unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date.
•
Level 2 - Values are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or indirectly observable as of the reporting date.
•
Level 3 - Values are based on prices or valuation techniques that are not based on observable market data.
Accordingly, Crescent Point's derivative assets and liabilities are classified as Level 2. Long-term investments are classified as Level 1, Level 2 or Level 3 depending on the valuation methods and inputs used and whether the applicable company is publicly traded or private. Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy.
Discussions of the fair values and risks associated with financial assets and liabilities, as well as summarized information related to derivative positions are detailed below:
a) Carrying amount and fair value of financial instruments
The fair value of cash, accounts receivable, reclamation fund, accounts payable and accrued liabilities and dividends payable approximate their carrying amount due to the short-term nature of those instruments. The fair value of the amounts drawn on bank credit facilities is equal to its carrying amount as the facilities bear interest at floating rates and credit spreads that are indicative of market rates. These financial instruments are classified as financial assets and liabilities at amortized cost and are reported at amortized cost.
The following table summarizes the carrying value of the Company's remaining financial assets and liabilities as compared to their respective fair values as at December 31, 2018:
 
2018 Carrying Value

 
2018 Fair Value

 
Quoted prices in active markets for identical assets
(Level 1)

 
Significant other observable inputs
(Level 2)

 
Significant unobservable inputs
 (Level 3)

 
($ millions)
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
 
Derivatives
595.6

 
595.6

 
—

 
595.6

 
—

 
Long-term investments (1)
8.7

 
8.7

 
8.7

 
—

 
—

 
 
604.3

 
604.3

 
8.7

 
595.6

 
—

 
Financial liabilities
 
 
 
 
 
 
 
 
 
 
Senior guaranteed notes (2)
2,294.6

 
2,273.5

 
—

 
2,273.5

 
—

 
 
2,294.6

 
2,273.5

 
—

 
2,273.5

 
—

 
(1)
Long-term investments are comprised of equity securities in public oil and gas companies.
(2)
The senior guaranteed notes are classified as financial liabilities at amortized cost and are reported at amortized cost. The notes denominated in US dollars are translated to Canadian dollars at the period end exchange rate. The fair value of the notes is calculated based on current interest rates and is not recorded in the financial statements.

CRESCENT POINT ENERGY CORP.
29

The following table summarizes the carrying value of the Company's remaining financial assets and liabilities as compared to their respective fair values as at December 31, 2017:
 
2017 Carrying Value

 
2017 Fair Value

 
Quoted prices in active markets for identical assets
(Level 1)

 
Significant other observable inputs
(Level 2)

 
Significant unobservable inputs
(Level 3)

 
($ millions)
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
 
Derivatives
282.7

 
282.7

 
—

 
282.7

 
—

 
Long-term investments (1)
72.6

 
72.6

 
65.1

 
—

 
7.5

 
 
355.3

 
355.3

 
65.1

 
282.7

 
7.5

 
Financial liabilities
 
 
 
 
 
 
 
 
 
 
Derivatives
123.9

 
123.9

 
—

 
123.9

 
—

 
Senior guaranteed notes (2)
1,932.0

 
1,951.3

 
—

 
1,951.3

 
—

 
 
2,055.9

 
2,075.2

 
—

 
2,075.2

 
—

 
(1)
Long-term investments are comprised of equity securities in public and private oil and gas companies.
(2)
The senior guaranteed notes are classified as financial liabilities at amortized cost and are reported at amortized cost. The notes denominated in US dollars are translated to Canadian dollars at the period end exchange rate. The fair value of the notes is calculated based on current interest rates and is not recorded in the financial statements.
Derivative assets and liabilities
Derivative assets and liabilities arise from the use of derivative contracts. The Company's derivative financial instruments are classified as fair value through profit or loss and are reported at fair value with changes in fair value recorded in net income.
The following table summarizes the fair value as at December 31, 2018 and the change in fair value for the year ended December 31, 2018:
($ millions)
Commodity contracts (1)

 
Interest contracts

 
CCS
contracts

 
Foreign exchange contracts

 
Total

 
Derivative assets / (liabilities), beginning of year
(53.8
)
 
9.5

 
198.0

 
5.1

 
158.8

 
Unrealized change in fair value
203.4

 
(4.0
)
 
236.7

 
3.3

 
439.4

 
Foreign exchange
(2.6
)
 
—

 
—

 
—

 
(2.6
)
 
Derivative assets, end of year
147.0


5.5


434.7


8.4


595.6

 
(1)
Includes oil and gas contracts.
The following table summarizes the fair value as at December 31, 2017 and the change in fair value for the year ended December 31, 2017:
($ millions)
Commodity contracts (1)

 
Interest contracts

 
CCS
contracts

 
Foreign exchange contracts

 
Total

 
Derivative assets / (liabilities), beginning of year
(60.6
)
 
2.1

 
373.3

 
6.9

 
321.7

 
Unrealized change in fair value
6.1

 
7.4

 
(175.3
)
 
(1.8
)
 
(163.6
)
 
Foreign exchange
0.7

 
—

 
—

 
—

 
0.7

 
Derivative assets / (liabilities), end of year
(53.8
)
 
9.5

 
198.0

 
5.1

 
158.8

 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets, end of year
23.2

 
9.5

 
244.9

 
5.1

 
282.7

 
Derivative liabilities, end of year
(77.0
)
 
—

 
(46.9
)
 
—

 
(123.9
)
 
(1)
Includes oil, gas and power contracts.

CRESCENT POINT ENERGY CORP.
30

Offsetting financial assets and liabilities
Financial assets and liabilities are only offset if the Company has the legal right to offset and intends to settle on a net basis or settle the asset and liability simultaneously. The Company offsets derivative assets and liabilities when the counterparty, commodity, currency and timing of settlement are the same. The following table summarizes the gross asset and liability positions of the Company's financial derivatives by contract that are offset on the balance sheet as at December 31, 2018 and December 31, 2017:
 
2018
 
 
2017
 
 
($ millions)
Asset

 
Liability

 
Net

 
Asset

 
Liability

 
Net

 
Gross amount
595.6

 
—

 
595.6

 
283.5

 
(124.7
)
 
158.8

 
Amount offset
—

 
—

 
—

 
(0.8
)
 
0.8

 
—

 
Net amount
595.6

 
—

 
595.6

 
282.7

 
(123.9
)
 
158.8

 
b)
Risks associated with financial assets and liabilities
The Company 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 is comprised of commodity price risk, interest rate risk and foreign exchange risk as discussed below.
Commodity price risk
The Company is exposed to commodity price risk on crude oil, NGLs and natural gas revenues as well as power on electricity consumption. As a means to mitigate the exposure to commodity price volatility, the Company has entered into various derivative agreements and physical contracts. The use of derivative instruments is governed under formal policies and is subject to limits established by the Board of Directors. Unless otherwise approved by the Board of Directors, the Company can hedge benchmark prices on up to 65 percent of after royalty volumes using a portfolio of swaps, collars and put option instruments and can hedge price differentials on up to 35 percent of after royalty volumes using a combination of financial derivatives and fixed differential physical contracts.
Crude oil - To partially mitigate exposure to crude oil commodity price risk, the Company enters into option contracts and swaps to manage the Cdn$ and US$ WTI price fluctuations. The Company also enters physical delivery and derivative WTI price differential contracts which manage the spread between US$ WTI and various stream prices. The Company manages physical delivery contracts with fixed differentials on a month-to-month spot and on a term contract basis. As at December 31, 2018, Crescent Point had committed, on a term contract basis, to deliver an average of approximately 14,900 bbl/d of liquids for calendar 2019, 9,900 bbl/d of crude oil for calendar 2020, 9,500 bbl/d of crude oil for calendar 2021, 6,500 bbl/d of crude oil for calendar 2022 and 4,000 bbl/d of crude oil for calendar 2023 to 2027.
Natural gas - To partially mitigate exposure to natural gas commodity price risk, the Company enters into AECO natural gas swaps, which manage the AECO natural gas price fluctuations.
Power - To partially mitigate exposure to electricity price changes, the Company enters into swaps or fixed price physical delivery contracts which fix the power price.
The following table summarizes the sensitivity of the fair value of the Company's derivative positions as at December 31, 2018 and December 31, 2017 to fluctuations in commodity prices or differentials, with all other variables held constant. When assessing the potential impact of these commodity price or differential changes, the Company believes a 10 percent near-term volatility is a reasonable measure. Fluctuations in commodity prices or differentials potentially would have resulted in unrealized gains (losses) impacting income before tax as follows:
 
Impact on Income Before Tax
 
 
Impact on Income Before Tax
 
 
($ millions)
Year ended December 31, 2018
 
 
Year ended December 31, 2017
 
 
 
Increase 10%

 
Decrease 10%

 
Increase 10%

 
Decrease 10%

 
Commodity price
 
 
 
 
 
 
 
 
Crude oil
(75.6
)
 
61.6

 
(150.9
)
 
139.4

 
Natural gas
(0.7
)
 
0.7

 
(2.9
)
 
2.9

 
Interest rate risk
The Company is exposed to interest rate risk on bank credit facilities to the extent of changes in market interest rates. Based on the Company's floating rate debt position as at December 31, 2018, a 1% increase or decrease in the interest rate on floating rate debt would amount to an impact on income before tax of $16.1 million (December 31, 2017 - $17.8 million, respectively).

CRESCENT POINT ENERGY CORP.
31

The Company partially mitigates its exposure to interest rate changes by entering into interest rate swap transactions. The following sensitivities show the resulting unrealized gains (losses) and the impact on income before tax of the respective changes in the applicable forward interest rates as at December 31, 2018 and December 31, 2017 with all other variables held constant:
 
Impact on Income Before Tax
 
 
Impact on Income Before Tax
 
 
($ millions)
Year ended December 31, 2018
 
 
Year ended December 31, 2017
 
 
Forward interest rates
Increase 10%

 
Decrease 10%

 
Increase 10%

 
Decrease 10%

 
Interest rate swaps
1.1

 
(1.1
)
 
1.9

 
(1.9
)
 
Foreign exchange risk
Foreign exchange risk arises from changes in foreign exchange rates that may affect the fair value or future cash flows of the Company's financial assets or liabilities. The Company is exposed to foreign exchange risk in relation to its US dollar denominated long-term debt, investment in U.S. subsidiaries and in relation to its crude oil sales.
The Company partially mitigates its exposure to foreign exchange rate changes by entering into US dollar swaps. Crescent Point entered into various CCS and foreign exchange swaps to hedge its foreign exchange exposure on its US dollar denominated long-term debt. To partially mitigate the foreign exchange risk relating to crude oil sales, the Company has fixed crude oil contracts to settle in Cdn$ WTI.
The following sensitivities show the resulting unrealized gains (losses) and the impact on income before tax of the respective changes in the period end and applicable forward foreign exchange rates at December 31, 2018 and December 31, 2017 with all other variables held constant:
 
 
Impact on Income Before Tax
 
 
Impact on Income Before Tax
 
 
($ millions)
Exchange Rate
Year ended December 31, 2018
 
 
Year ended December 31, 2017
 
 
Cdn$ relative to US$
 
Increase 10%

 
Decrease 10%

 
Increase 10%

 
Decrease 10%

 
US dollar long-term debt
Period End
394.2

 
(394.2
)
 
390.1

 
(390.1
)
 
Cross currency swaps
Forward
(402.3
)
 
402.3

 
(402.5
)
 
402.5

 
Foreign exchange swaps
Forward
(9.4
)
 
9.4

 
(3.7
)
 
3.7

 
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 Company's accounts receivable are with customers in the oil and gas industry and are subject to normal industry credit risks. The Company monitors the creditworthiness and concentration of credit with customers of its physical oil and gas sales. To mitigate credit risk associated with its physical sales portfolio, Crescent Point obtains financial assurances such as parental guarantees, letters of credit and third party credit insurance. Including these assurances, approximately 95% of the Company's oil and gas sales are with entities considered investment grade.
The Company 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 Company's financial counterparties be downgraded below the A rating limit, the Chief Financial Officer will advise the Audit Committee and provide recommendations to minimize the Company's credit risk to that counterparty. The maximum credit exposure associated with accounts receivable is the total carrying amount and the maximum exposure associated with the derivative instruments approximates their fair value.
At December 31, 2018, approximately 5 percent (December 31, 2017 - 4 percent) of the Company's accounts receivable balance was outstanding for more than 90 days and the Company's average expected credit loss was 2.95% on a portion of the Company’s accounts receivable balance relating to joint venture receivables.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company manages its liquidity risk through managing its capital structure and continuously monitoring forecast cash flows and available credit under existing banking arrangements as well as other potential sources of capital.
At December 31, 2018, the Company had available unused borrowing capacity on bank credit facilities of approximately $1.62 billion, including $8.0 million outstanding letters of credit and cash of $15.3 million.

CRESCENT POINT ENERGY CORP.
32

The timing of undiscounted cash outflows relating to the financial liabilities outstanding as at December 31, 2018 is outlined in the table below:
($ millions)
1 year

 
2 to 3 years

 
4 to 5 years

 
More than 5 years

 
Total

 
Accounts payable and accrued liabilities
532.9

 
—

 
—

 
—

 
532.9

 
Dividends payable
16.5

 
—

 
—

 
—

 
16.5

 
Senior guaranteed notes (1)
156.9

 
486.7

 
767.0

 
843.1

 
2,253.7

 
Bank credit facilities (2)
108.2

 
2,128.7

 
—

 
—

 
2,236.9

 
(1)
These amounts include the notional principal and interest payments pursuant to the CCS and foreign exchange swap related to the senior guaranteed notes, which fix the amounts due in Canadian dollars.
(2)
These amounts include interest based on debt outstanding and interest rates effective as at December 31, 2018 and includes undiscounted cash outflows pursuant to the CCS related to LIBOR loans. The current maturity date of the Company's facilities is June 10, 2021. The Company expects that the facilities will continue to be renewed and extended prior to their maturity dates.
The timing of undiscounted cash outflows relating to the financial liabilities outstanding as at December 31, 2017 is outlined in the table below:
($ millions)
1 year

 
2 to 3 years

 
4 to 5 years

 
More than 5 years

 
Total

 
Accounts payable and accrued liabilities
613.3

 
—

 
—

 
—

 
613.3

 
Dividends payable
16.8

 
—

 
—

 
—

 
16.8

 
Derivative liabilities (1)
55.6

 
2.5

 
—

 
—

 
58.1

 
Senior guaranteed notes (2)
126.0

 
371.1

 
512.0

 
1,048.9

 
2,058.0

 
Bank credit facilities (3)
98.3

 
2,316.7

 
—

 
—

 
2,415.0

 
(1)
These amounts exclude undiscounted cash outflows pursuant to the CCS and foreign exchange swap related to the senior guaranteed notes, and the CCS related to LIBOR loans.
(2)
These amounts include the notional principal and interest payments pursuant to the CCS and foreign exchange swap related to the senior guaranteed notes, which fix the amounts due in Canadian dollars.
(3)
These amounts include interest based on debt outstanding and interest rates effective as at December 31, 2017 and includes undiscounted cash outflows pursuant to the CCS related to LIBOR loans.
c)
Derivative contracts
The Company enters into derivative crude oil, natural gas, power, interest rate, cross currency and foreign exchange contracts along with crude oil differential contracts to manage its exposure to fluctuations in the price of crude oil, gas, power, foreign exchange and interest on debt.
The following is a summary of the derivative contracts in place as at December 31, 2018:
Financial WTI Crude Oil Derivative Contracts – Canadian Dollar (1)
 
 
 
Swap
 
Three-way Collar
 
Term
Volume
(bbls/d)

 
Average Price
($/bbl)

 
Average
Sold
Call Price
($/bbl)

 
Average Bought
Put Price
($/bbl)

 
Average
Sold
Put Price
($/bbl)

 
2019
47,151

 
73.51

 
82.31

 
77.24

 
66.52

 
2020 January - June
8,470

 
—

 
92.08

 
84.77

 
71.00

 
(1)
The volumes and prices reported are the weighted average volumes and prices for the period.
Financial WTI Crude Oil Derivative Contracts – US Dollar (1)
 
 
 
Three-way Collar
 
Term
Volume
(bbls/d)

 
Average
Sold
Call Price
(US$/bbl)

 
Average Bought
Put Price
(US$/bbl)

 
Average
Sold
Put Price
(US$/bbl)

 
2019 January - June
8,972

 
56.01

 
49.89

 
43.00

 
(1)
The volumes and prices reported are the weighted average volumes and prices for the period.

CRESCENT POINT ENERGY CORP.
33

Financial AECO Natural Gas Derivative Contracts – Canadian Dollar (1)
Average Volume
(GJ/d)
 
Average Swap Price
($/GJ)
 
Term
 
2019
19,948
 
2.71
 
(1)
The volumes and prices reported are the weighted average volumes and prices for the period.
Financial Interest Rate Derivative Contracts – Canadian Dollar
 
Notional Principal
($ millions)
 
Fixed Rate (%)
 
Term
Contract
 
 
January 2019 - August 2020
Swap
50.0
 
1.16
 
January 2019 - August 2020
Swap
50.0
 
1.16
 
January 2019 - August 2020
Swap
100.0
 
1.15
 
January 2019 - September 2020
Swap
50.0
 
1.14
 
January 2019 - September 2020
Swap
50.0
 
1.11
 
Financial Cross Currency Derivative Contracts
 
 
 
 
 
Term
Contract
Receive Notional Principal
(US$ millions)

 
Fixed Rate (US%)

 
Pay Notional Principal
(Cdn$ millions)

 
Fixed Rate (Cdn%)

 
January 2019
Swap
250.0

 
4.54

 
327.9

 
3.80

 
January 2019
Swap
230.0

 
4.54

 
301.8

 
3.80

 
January 2019
Swap
100.0

 
4.54

 
131.1

 
3.80

 
January 2019
Swap
200.0

 
4.54

 
262.5

 
3.80

 
January 2019
Swap
150.0

 
4.54

 
196.6

 
3.81

 
January 2019
Swap
200.0

 
4.52

 
265.7

 
3.75

 
January 2019
Swap
100.0

 
4.52

 
132.9

 
3.75

 
January 2019
Swap
90.0

 
4.52

 
119.5

 
3.73

 
January 2019
Swap
90.0

 
4.52

 
119.6

 
3.74

 
January 2019 - May 2019
Swap
68.0

 
3.39

 
66.7

 
4.53

 
January 2019 - March 2020
Swap
155.0

 
6.03

 
158.3

 
6.45

 
January 2019 - April 2021
Swap
82.0

 
5.13

 
79.0

 
5.83

 
January 2019 - June 2021
Swap
52.5

 
3.29

 
56.3

 
3.59

 
January 2019 - May 2022
Swap
170.0

 
4.00

 
166.9

 
5.03

 
January 2019 - April 2023
Swap
61.5

 
4.12

 
80.3

 
3.71

 
January 2019 - June 2023
Swap
270.0

 
3.78

 
274.7

 
4.32

 
January 2019 - June 2024
Swap
257.5

 
3.75

 
276.4

 
4.03

 
January 2019 - April 2025
Swap
82.0

 
4.30

 
107.0

 
3.98

 
January 2019 - April 2025
Swap
230.0

 
4.08

 
291.1

 
4.13

 
January 2019 - April 2027
Swap
20.0

 
4.18

 
25.3

 
4.25

 
Financial Foreign Exchange Forward Derivative Contracts
 
 
 
 
Settlement Date
Contract
 
Receive Notional Principal
(US$ millions)

 
Pay Notional Principal
(Cdn$ millions)

 
January 2019
Swap
 
39.3

 
53.1

 
May 2022
Swap
 
30.0

 
32.2

 
26.
RELATED PARTY TRANSACTIONS
All related party transactions are recorded at the exchange amount.
During the year ended December 31, 2018, Crescent Point recorded $11.6 million (year ended December 31, 2017 - $12.9 million) of expenditures in the normal course of business to an oilfield services company of which a director of Crescent Point is a director and officer. The oilfield services company is one of only a few specialized service providers in their area of expertise with capacity and geographical presence to meet the Company’s needs. The service company was selected, along with a few other key vendors, to provide goods and services as part of a comprehensive and competitive request for proposal process with key factors of its success including the unique nature of proprietary products, the ability to service specific geographic regions, proven safety performance and competitive pricing.

CRESCENT POINT ENERGY CORP.
34

Compensation of Key Management Personnel
Key management personnel of the Company consists of its directors and executive officers. In addition to the directors fees and salaries paid to the directors and officers, respectively, the directors participate in the Restricted Share Bonus Plan and DSU Plan and the officers participate in the Restricted Share Bonus Plan and PSU Plan. The Company recorded $7.7 million (year ended December 31, 2017 - $7.5 million) relating to compensation of key management personnel and $11.3 million (year ended December 31, 2017 - nil) relating to executive severance as general and administrative expenses for the year ended December 31, 2018. Share-based compensation costs relating to compensation of key management personnel and severance were $22.6 million (year ended December 31, 2017 –$21.7 million) and $2.8 million (year ended December 31, 2017 - nil), respectively.
27.
COMMITMENTS
At December 31, 2018, the Company had contractual obligations and commitments as follows:
($ millions)
 
1 year

 
2 to 3 years

 
4 to 5 years

 
More than 5 years

 
Total

 
Operating leases (building, vehicle and equipment) (1)
 
35.3

 
64.5

 
54.3

 
194.5

 
348.6

 
Transportation commitments
 
16.3

 
24.8

 
22.7

 
26.2

 
90.0

 
Total contractual commitments
 
51.6

 
89.3

 
77.0

 
220.7

 
438.6

 
(1)
Included in operating leases are recoveries of rent expense on office space the Company has subleased of $44.8 million.
At December 31, 2017, the Company had contractual obligations and commitments as follows:
($ millions)
 
1 year

 
2 to 3 years

 
4 to 5 years

 
More than 5 years

 
Total

 
Operating leases (building and vehicle) (1)
 
30.2

 
53.1

 
52.1

 
217.0

 
352.4

 
Transportation commitments
 
17.8

 
29.6

 
22.9

 
37.4

 
107.7

 
Total contractual commitments
 
48.0

 
82.7

 
75.0

 
254.4

 
460.1

 
(1)
Included in operating leases are recoveries of rent expense on office space the Company has subleased of $50.6 million.
28.SIGNIFICANT SUBSIDIARIES
The Company has the following significant subsidiaries, each owned 100% directly and indirectly, at December 31, 2018:
Subsidiary Name
Country of Incorporation
Crescent Point Resources Partnership
Canada
Crescent Point Holdings Inc.
Canada
Crescent Point Energy U.S. Corp.
United States of America
Crescent Point U.S. Holdings Corp.
United States of America
Crescent Point Energy Lux S.à r.l.
Luxembourg
29. SUPPLEMENTAL DISCLOSURES
Comprehensive Income Statement Presentation
The Company’s statements of comprehensive income are prepared primarily by nature of expense, with the exception of compensation expenses which are included in the operating, general and administrative and share-based compensation line items, as follows:
($ millions)
2018

 
2017

 
Operating
96.3

 
92.9

 
General and administrative
88.8

 
69.6

 
Share-based compensation
46.0

 
62.0

 
Total compensation expenses
231.1

 
224.5

 

CRESCENT POINT ENERGY CORP.
35

Cash flow statement presentation
($ millions)
2018

 
2017

 
Operating activities
 
 
 
 
Changes in non-cash working capital:
 
 
 
 
Accounts receivable
89.8

 
(21.6
)
 
Prepaids and deposits
—

 
0.9

 
Accounts payable and accrued liabilities
(39.6
)
 
13.9

 
Other current liabilities
(11.5
)
 
24.0

 
Other long-term liabilities
(1.5
)
 
1.5

 
 
37.2

 
18.7

 
Investing activities
 
 
 
 
Changes in non-cash working capital:
 
 
 
 
Accounts receivable
(25.0
)
 
(26.0
)
 
Accounts payable and accrued liabilities
(56.6
)
 
(39.8
)
 
 
(81.6
)
 
(65.8
)
 
Financing activities
 
 
 
 
Changes in non-cash working capital:
 
 
 
 
Dividends payable
(0.3
)
 
0.5

 
($ millions)
2018

 
2017

 
Other
 
 
 
 
Lease inducement
(3.6
)
 
(3.6
)
 
Onerous contract provision
(1.5
)
 
2.2

 
Translation of US dollar derivatives
2.6

 
(0.7
)
 
 
(2.5
)
 
(2.1
)
 

CRESCENT POINT ENERGY CORP.
36

Supplementary Financing Cash Flow Information
The Company's reconciliation of cash flow from financing activities is outlined in the table below:
($ millions)
 
Dividends payable

 
Current portion of long-term debt

 
Long-term debt

 
Shareholders' capital

 
December 31, 2017
 
16.8

 
63.8

 
4,047.2

 
16,489.6

 
Changes from cash flow from financing activities:
 
 
 
 
 
 
 
 
 
Redemption of restricted shares
 
 
 
 
 
 
 
(1.7
)
 
Decrease in bank debt, net
 
 
 
 
 
(360.0
)
 
 
 
Issuance of senior guaranteed notes
 
 
 
 
 
267.3

 
 
 
Repayment of senior guaranteed notes
 
 
 
(65.0
)
 
 
 
 
 
Realized gain on cross currency swap maturity
 
 
 
14.7

 
55.6

 
 
 
Cash dividends paid
 
(198.8
)
 
 
 
 
 
 
 
Non-cash changes:
 
 
 
 
 
 
 
 
 
Redemption of restricted shares
 
 
 
 
 
 
 
59.0

 
Reclassified to current
 
 
 
94.2

 
(94.2
)
 
 
 
Cash dividends declared
 
198.5

 
 
 
 
 
 
 
Foreign exchange
 
 
 
(7.9
)
 
261.0

 
 
 
December 31, 2018
 
16.5

 
99.8

 
4,176.9

 
16,546.9

 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
16.3

 
90.6

 
3,730.1

 
16,400.2

 
Changes from cash flow from financing activities:
 
 
 
 
 
 
 
 
 
Redemption of restricted shares
 
 
 
 
 
 
 
(2.3
)
 
Share issue costs
 
 
 
 
 
 
 
(0.3
)
 
Increase in bank debt, net
 
 
 
 
 
635.9

 
 
 
Repayment of senior guaranteed notes
 
 
 
(90.3
)
 
 
 
 
 
Realized gain (loss) on cross currency swap maturity
 
 
 
21.4

 
(76.0
)
 
 
 
Cash dividends paid
 
(197.2
)
 
 
 
 
 
 
 
Non-cash changes:
 
 
 
 
 
 
 
 
 
Redemption of restricted shares
 
 
 
 
 
 
 
91.9

 
Deferred taxes on share issue costs
 
 
 
 
 
 
 
0.1

 
Reclassified to current
 
 
 
68.3

 
(68.3
)
 
 
 
Cash dividends declared
 
197.7

 
 
 
 
 
 
 
Foreign exchange
 
 
 
(26.2
)
 
(174.5
)
 
 
 
December 31, 2017
 
16.8

 
63.8

 
4,047.2

 
16,489.6

 
30. GEOGRAPHICAL DISCLOSURE
As at December 31, 2018, Crescent Point's non-current assets related to the U.S. foreign operations was $2.46 billion (December 31, 2017 - $2.74 billion). See Note 18 - "Oil and Gas Sales" for Crescent Point's oil and gas sales related to the U.S. foreign operations.

CRESCENT POINT ENERGY CORP.
37

Directors
Robert Heinemann, Chairman
Rene Amirault (4)
Peter Bannister (3) (4)
Laura Cillis (1) (2)
John Dielwart (6)
Ted Goldthorpe (1) (5)
Mike Jackson (1) (2) (5)
Francois Langlois (3) (4) (5)
Barbara Munroe (2) (5)
Gerald Romanzin (1) (3)
Craig Bryksa (4)
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Human Resources and Compensation Committee of the Board of Directors
(3) Member of the Reserves Committee of the Board of Directors
(4) Member of the Environmental, Health & Safety Committee of the Board of Directors
(5) Member of the Corporate Governance and Nominating Committee
(6) Member effective March 7, 2019
Officers
Craig Bryksa
President and Chief Executive Officer
Ken Lamont
Chief Financial Officer
Ryan Gritzfeldt
Chief Operating Officer
Brad Borggard
Senior Vice President, Corporate Planning and Capital Markets
Derek Christie
Senior Vice President, Exploration and Corporate Development
Mark Eade
Senior Vice President, General Counsel and Corporate Secretary
Scott Tuttle
Senior Vice President, Human Resources and Corporate Services
Head Office
Suite 2000, 585 - 8th Avenue S.W.
Calgary, Alberta T2P 1G1
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
Legal Counsel
Norton Rose Fulbright Canada LLP
Calgary, Alberta
Evaluation Engineers
GLJ Petroleum Consultants Ltd.
Calgary, Alberta
Sproule Associates Ltd.
Calgary, Alberta
Registrar and Transfer Agent
Investors are encouraged to contact Crescent Point's Registrar and Transfer Agent for information regarding their security holdings:
Computershare Trust Company of Canada
600, 530 - 8th Avenue S.W.
Calgary, Alberta T2P 3S8
Tel: (403) 267-6800
Stock Exchanges
Toronto Stock Exchange - TSX
New York Stock Exchange - NYSE
Stock Symbol
CPG
Investor Contacts
Brad Borggard
Senior Vice President, Corporate Planning and Capital Markets
(403) 693-0020
Shant Madian
Vice President, Investor Relations and Corporate Communications
(403) 693-0020



CRESCENT POINT ENERGY CORP.
38