Yahoo Finance Baytex Energy Corp. (NYSE:BTE) Q1 2024 Earnings Call Transcript
Baytex Energy Corp. (NYSE:BTE) Q1 2024 Earnings Call Transcript May 10, 2024
Baytex Energy Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. First Quarter 2024 Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. [Operator Instructions] I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead.
Brian Ector: Thank you, Ishia. Good morning, ladies and gentlemen, and thank you for joining us to discuss our first quarter 2024 financial and operating results. Today I am joined by Eric Greager, our President and Chief Executive Officer, Chad Kalmakoff, our Chief Financial Officer, and Chad Lundberg, our Chief Operating Officer. While listening, please keep in mind that some of our remarks will contain forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information, and non-GAAP financial and capital management measures in yesterday's press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified.
Following our prepared remarks, we will be taking questions from the analysts. In addition, if you are listening in today via the webcast, you will have the opportunity to submit an online question, and we will do our best to answer all questions submitted. With that, I would now like to turn the call over to Eric.
Eric Greager: Thanks, Brian. Good morning, everyone, and welcome to our first quarter 2024 conference call. In the first quarter, we safely and efficiently executed the largest exploration and development program in company history, and delivered operating and financial results consistent, with our full year guidance. We are off to a strong start in 2024 and expect to deliver substantial free cash flow, and meaningful shareholder returns over the next three quarters. We increased production per share by 15% in Q1, 2024, compared to Q1, 2023, with production averaging more than 150,600 BOE per day, 84% oil and NGLs. We drilled 83 net wells with 13 rigs running at the peak of the quarter and E&D expenditures totaling $413 million, one-third of our guided full year expenditures.
Our 2024 guidance remains unchanged with E&D expenditures of $1.2 billion to $1.3 billion and production of 150,000 to 156,000 BOE per day. Based on the forward strip, we expect to generate approximately $700 million of free cash flow in 2024. Our strong free cash flow profile reflects the efficiency of our E&D program, higher forecast production volumes for the remainder of the year, and improved crude oil realizations in Canada, and Eagle Ford. In Canada, we are benefiting from the completion of the Trans Mountain Pipeline expansion and increased oil export capacity, which is contributing to narrowing basis differentials out of Western Canada. In Eagle Ford, we benefit from our exposure to premium U.S. Gulf Coast pricing for our light oil and condensate production.
We intend to allocate 50% of free cash flow to the balance sheet, and 50% to direct shareholder returns, which includes a combination of share buybacks and a quarterly dividend. I'd like to now turn the call over to Chad Kalmakoff to discuss our financial results.
Chad Kalmakoff: Thanks, Eric. In Q1, adjusted funds flow per share was $424 million, or 52% per basic share, which is a 21% increase compared to Q1 last year. The first quarter is our highest capital spend quarter of the year, which sets the stage for a strong free cash flow and increased shareholder returns for the balance of the year. Our current normal course issuer bid allows us to purchase up to 68.4 million common shares, during the 12-month period ending June 28, 2024. As of May 7, we had repurchased 46.7 million common shares for $253 million at an average price of $5.42 per share, representing 5.4% of our total shares outstanding. Our total debt at March 31, 2024 was $2.5 billion, largely unchanged from year-end, due to our large Q1 capital program, and the impact of the weakening Canadian dollar on our U.S. dollar-denominated debt.
As I stated, our Q1 capital program has set the stage for a strong free cash flow profile, through the balance of the year. A significant portion of that free cash flow will go to debt reduction. In addition, we're actively managing our debt maturities to ensure ample liquidity and flexibility, to execute our business plan while our overall debt position is reduced. With this in mind, subsequent to quarter-end, we undertook two significant transactions. Firstly, on April 1, we closed a private placement of US$575 million aggregate principal amount of senior unsecured notes with an eight-year term. We are very pleased with the market support for this offering. The notes bear interest at 7.38% per year and mature on March 15, 2032. Net proceeds from the offering were used to redeem the remaining $410 million 8.75% notes, due April 1, 2027 and to repay a portion of our credit facilities.
Secondly, we extended the maturity of our credit facilities, by two years to May 9, 2028. Again, we had great support from our syndicate, and I was pleased that we could complete the extension of our US$1.1 billion credit facility. The refinancing of our notes to 2032 and the extension of our credit facilities out to 2028 puts us in a great position with respect to our maturity schedule. We have ample liquidity and flexibility, to execute our business plans while reducing debt and providing shareholder returns. Turning to risk management, we employ a disciplined commodity hedging program, to mitigate the volatility and revenue due to changes in commodity prices. For the balance of 2024, we have hedged approximately 40% of our net crude oil exposure, utilizing two-way collars with an average floor price of $60 per barrel and an average ceiling price of $96 per barrel.
For the first half of 2025, we have hedged approximately 20% of our net crude oil exposure, utilizing two-way collars with an average floor price of $60 and an average ceiling price of $91 a barrel. Now I'll turn the call over to Chad Lundberg, to discuss the results of our first quarter capital program.
Chad Lundberg: Well, thanks, Chad. I'm now pleased to speak to our Q1 operations, and highlight the significant efforts of our team. In the Eagle Ford, we continue to deliver strong results across the black oil, volatile oil, and condensate thermal maturity windows. In the first quarter, we brought 19 wells on stream, including 15 lower Eagle Ford wells, three upper Eagle Ford wells, and one refrac. When we compare our operated Eagle Ford performance to a data set of over 560 wells sourced from public data, our performance over the last nine months ranks in the top quartile. On a production per lateral foot basis, we are at the top of the second quartile. I'm very pleased with our results, and I'm confident there's more of this to come.
We remain focused on optimizing our acreage and our systems. Our 2024 program includes four upper Eagle Ford wells, three of which were brought on stream, during the first quarter and are still ramping. We also completed a refrac in our Medina unit that, is expected to generate an internal rate of return of over 100%. Additional refrac opportunities have been identified to supplement our capital program. For 2024, we are targeting an 8% improvement in our operated drilling and completions costs for completed lateral foot over 2023. In our Canadian light oil business unit, we completed our 2024 drilling program in the Pembina Duvernay, and executed another successful winter drilling program in the Viking. We were pleased with the efficiency of our two-path, seven-well drilling program in our Duvernay, which saw a 21% improvement in drilling days, measured from spot to rig release and a 10% improvement in drilling costs, compared to 2023.
Fracture simulation of three-well pad commenced in April and the four-well pad is expected to commence in June. In our conventional heavy well business unit, Peavine continued to outperform expectations, and we followed up early exploration success with development in Morinville and the greater Cold Lake area. At Peavine, we brought 12 wells on stream during Q1, 2024 and initial well performance exceeded type curve expectations. At Morinville, we brought four multilateral horizontal wells on stream, and targeted the Rex formation, a Clearwater equivalent. In the greater Cold Lake area, we recently brought five Waseca horizontal multilateral wells on stream. I'm very pleased with our first quarter development program, which delivered strong results across the portfolio.
And with that, I will turn the call back to Eric, for his closing remarks.
Eric Greager: Thanks, Chad. I want to take a moment to thank our operating teams. As many recall, we started the year with some really challenging conditions, extreme cold across North America followed by heavy rainfall in Texas. The teams did a great job. They maintained safe and efficient operations, delivered on the quarter, and delivered the largest Q1 capital program in company history, setting us up well for the rest of the year. I want to highlight the expansion of our land base in the Pembina Duvernay. During the first quarter, we successfully acquired approximately 31 net sections of high quality Duvernay lands on the Southern flank of our existing acreage. This brings our core Pembina Duvernay acreage to 142 net sections, providing us with significant inventory and growth potential, in what is becoming a very interesting part of the Duvernay.
We believe the resource associated with the newly acquired lands, is of very high quality. These lands will immediately compete for capital in our portfolio. As I mentioned at the outset, we are building momentum, and expect to generate substantial free cash flow and direct shareholder returns this year. We are committed to a disciplined returns-based capital allocation philosophy aimed at driving increased per share growth and returns. Our Board has declared a Q2 cash dividend of $0.0225 per share to be paid on July 2, 2024. And now we are ready to open the call for questions.
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