Baytex Energy Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 6, 2025

There are 7 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. First Quarter twenty twenty five Financial and Operating Results Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded.

Operator

After the presentation, there will be an opportunity for analysts to ask questions. I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead.

Speaker 1

Thank you, Dave. Good morning, ladies and gentlemen, and thank you for joining us to discuss our first quarter twenty twenty five financial and operating results. Today, am joined by Eric Greager, our President and Chief Executive Officer Chad Kalmacau, 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.

Speaker 1

All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. And following our prepared remarks, we will be taking questions from analysts. In addition, if you're listening in today via the webcast, you'll have the opportunity to submit an online question and time permitting, we will strive to answer your question. With that, I would now like to turn the call over to Eric. Thanks, Brian.

Speaker 1

Good morning, everyone. Welcome to our first quarter twenty twenty five conference call. In the first quarter, we efficiently executed our exploration and development program, delivering results consistent with our full year plan. Despite a challenging macroeconomic environment, we continue to generate free cash flow and deliver returns to shareholders. The broader operating landscape remains complex as global crude oil markets face macroeconomic uncertainty, concerns over tariffs, global trade tensions and OPEC's recent decisions to increase supply.

Speaker 1

Benchmark WTI prices have also softened recently trading in the US55 dollars to US60 dollars per barrel range, down from a high of $80 in early January. In response to these headwinds, we are focused on managing what's in our control. This includes focusing on safe and efficient operations and a disciplined approach to capital allocation. Yesterday, we outlined adjustments to our 2025 plan to enhance free cash flow and strengthen our balance sheet. Our 2025 E and D capital budget is set at 1,200,000,000.0 to $1,300,000,000 and supports annual production of 148,000 to 152,000 BOE per day.

Speaker 1

In light of the current commodity price environment, we anticipate full year CapEx and production to trend toward the low end of these ranges. With these ranges, we expect to generate approximately $200,000,000 of free cash flow in 2025, assuming $60 per barrel WTI for the balance of the year. This represents an improvement over our original plan and highlights the resiliency of our business in this lower price environment. In addition, we are refining our shareholder return framework to prioritize the balance sheet. In the near term, we plan to allocate 100% of our free cash flow to debt repayment after funding our quarterly dividend.

Speaker 1

Given the volatile pricing environment, we will maintain a prudent approach to shareholder returns, which has historically comprised a mix of share buybacks and quarterly dividends. With that, I'll turn the call over to Chad Kalmakoff to discuss our financial results. Thanks, Eric.

Speaker 2

In the first quarter, '80 '4 percent of our production was weighted toward crude oil and liquids, reaffirming our position as one of the most oil levered companies in North American energy sector. This leverage is evident in our sensitivity to WTI prices, where every five dollars per barrel change impacts our annual adjusted funds flow by approximately $225,000,000 on an unhedged basis. In the current pricing environment, our hedging program is proving effective in mitigating revenue volatility caused by fluctuations in commodity prices. For the balance of 2025, we have hedged approximately 45% of our net crude oil exposure using two way collars with an average floor price of $60 per barrel. Due to the timing of capital expenditures, our free cash flow was typically weighted to the second half of the year.

Speaker 2

We were pleased to generate $53,000,000 in free cash flow in the first quarter. Of this, we returned $30,000,000 to shareholders through the repurchase of 3,700,000.0 common shares and the payment of our quarterly cash dividend of $0.02 $25 per share. By comparison, we generated no free cash flow in the first quarter of last year. Over the past seven quarters, we have returned a total of $580,000,000 to shareholders. We repurchased approximately 11% of our outstanding of our shares outstanding and paid total dividends of $127,000,000 Strengthening our balance sheet remains a top priority.

Speaker 2

Our pace of debt repayment reflects both the free cash flow generation and the impact of the Canadian U. S. Dollar exchange rate fluctuations, which affect the translation of our U. S. Dollar denominated debt.

Speaker 2

As of 03/31/2025, our net debt was $2,400,000,000 representing a 10% reduction over the last twelve months. On a U. S. Dollar basis, our net debt decreased by approximately 15%. We have significant financial flexibility supported by both substantial credit capacity and strong long term note maturity schedule.

Speaker 2

Our credit facilities total US1.1 billion dollars approximately CAD1.5 billion and are less than 20% drawn and mature in May of twenty twenty eight. Importantly,

Speaker 1

these

Speaker 2

are non borrowing based facilities and do not require annual or semiannual reviews. Additionally, our earliest note maturity is until April 2030. Let me now turn the call over to Chad Lundberg to discuss our operating results.

Speaker 3

Thanks, Chad. We're pleased with the results of our first quarter program, delivering production of 144,200 BOE per day, which is a 2% increase in production per share compared to Q1 twenty twenty four. While first quarter production was slightly lower year over year due to weather related disruptions and the Corroborate thermal disposition, we remain on track with our full year plan. Exploration and development expenditures totaled $4.00 $5,000,000 consistent with guidance and we brought 96 wells on stream. In the Eagle Ford, our development program largely focused on the black oil to condensate windows of our acreage where we brought 16 wells on stream including 12 operated.

Speaker 3

For 2025, we are targeting a 7% improvement in operated drilling and completion costs per completed lateral foot compared to 2024. In our Canadian light oil business unit, we are excited about our Pembina Duvernay development. Two of the three pads have been drilled totaling six wells including our longest wells in the play at more than 24,000 feet total measured depth and 13,500 feet of lateral length. Completion operations commenced mid April and we expect to bring these wells on stream during the second and third quarters. In the Viking, 40 2 wells were brought on stream in the first quarter.

Speaker 3

In our heavy oil business unit, Peavine continued to deliver top well results. We brought on stream 12 Clearwater wells at Peavine, Four wells at Peace River and 12 wells across the broader Mannville Group in Lloydminster. As we progress through the year, our operating teams will continue to focus on safe and efficient development across our portfolio. With that, I will turn the call back to Eric for his closing remarks.

Speaker 1

Thanks Chad. Despite ongoing market volatility and uncertainty, our business remains resilient. We have a strong portfolio of assets in the Eagle Ford and in Western Canada, supported by robust financial flexibility and a well structured debt maturity profile. At yesterday's Annual General Meeting, we were encouraged by the strong shareholder support. However, despite solid operating performance, we recognize that this is not reflected in the value of our stock.

Speaker 1

We are not satisfied and addressing this fact remains a key priority. The steps outlined today, reducing capital spending, enhancing free cash flow and accelerating debt repayment, help demonstrate our commitment to creating long term value. Looking ahead, we remain focused on disciplined execution and ensuring that Baytex is well positioned to navigate current challenges while delivering sustainable returns over the long term. Dave, we're ready to open the call for analyst questions.

Operator

We will now begin the analyst question and answer session. Our first question comes from Menno Holzhoff with TD Cowen. Please go ahead.

Speaker 4

Good morning, everyone, and thanks for taking my question. I'll start with the obvious one related to CapEx. If oil were to fall to $50 how much could you realistically pull from the $1,200,000,000 budget before production declines start to set in? And which assets would be that the first half capital pulled? And I suppose on a related note, what is your current corporate decline rate?

Speaker 4

Okay.

Speaker 1

So Mano, I'm going to take the CapEx question first. In light of WTI trading in this kind of mid-50s range recently, we flexed our capital program to low, low, and it's all very fresh. Like This oil price war along with some of the macroeconomic tensions are all pretty fresh. So we are monitoring the situation, but we have lots of flex in our capital, some of which we have exercised with this kind of move to the low end of capital guidance, which will result in a move to the low end of production guidance, but much of which we still have a lot of flexibility. Let me give you an example and this is purely an example because it's not in our plan, but we're in the process now of drilling our third three well pad in Duvernay and we're in the process of completing the first pad in Duvernay.

Speaker 1

And as an example of the kind of flex, we could dock those Duvernay wells and carry them later into the year or even out of the year as duct inventory for a future opportunity. That's the nature of it, but those sorts of things exist across our Eagle Ford as well. And so I think the flex in the CapEx remains. We've talked about this in the past. The strong hedge book through 2025 also continues to support the business.

Speaker 1

And I would say just as a corollary to this particular line, would point out that the CapEx we've removed so far from the program has come primarily out of the Eagle Ford, a couple pads out of the Eagle Ford and then five wells out of the Viking. Let me kick it back to you, Mano, to see if that closes out the question. I think you had a question around decline rate as well, corporate decline rate.

Speaker 4

Yes. We chatted, I think it was in the low 30s. Does that sound about right still?

Speaker 1

Yes. The corporate decline rate sits right at about 35.

Speaker 4

Okay. Terrific. And then, since you touched on the Duvernay, maybe I'll take my next question there. It sounds like everything is moving in the right direction in terms of drilling activity, well results. As you indicated, there's quite a of flex in that program.

Speaker 4

But can you maybe just speak to where things generally stand in terms of the build out of infrastructure, egress, water licensing, all of those sorts of things to support your growth plan? I mean, it's a volatile market, you talked about, Eric, maybe we're back to $65 next week, who knows. But maybe you could just kind of walk us through the broader plan there. Thank you.

Speaker 1

Sure, sure. Thanks, Menno. We are building the required infrastructure as we go and we're using a central production facility approach. So kind of think hub and spoke approach. So the central production facilities will be built out through the development program early on.

Speaker 1

And then as we continue to develop around those CPFs, they'll just those incremental pads will be tied into the central production facilities. So the later wells will benefit from taking advantage of available capacity in the CPFs as that capacity comes. In 2025 in particular, we are in the process of building out modest facilities in conjunction with the three well pads. It's all built in the facility, the incremental facilities capital is all built into the current plan. And it's really the kind of pace that allows us to invest in the facilities, capital, tie ins and additional infrastructure along the way together with our new partnership with Gibson, which we announced a quarter or so ago.

Speaker 4

Terrific. Thanks, Eric. I will, I'll turn it back.

Speaker 1

Thanks, Menno.

Operator

And the next question comes from Dennis Fong with CIBC World Markets. Please go ahead.

Speaker 5

Hi, good morning and thanks for taking my questions. My first one maybe draws off of a little bit of that discussion around the hedging program. Understand that you're about 45 hedged at least for kind of portion or the majority of 2025. Can you talk towards some of your end goals around your commodity risk management program? What are you specifically targeting around sustainability?

Speaker 5

Would you be interested in hedging more? Do you feel comfortable about today's level? And I've got a second question as well.

Speaker 1

Okay. Yes, let me take that one first, so I cut off your opportunity to ask the second, Dennis. The hedging has always been structured to be anchored to the balance sheet and the asset base of the portfolio. And what I mean when I say that is the $60 floor that we put in a simple two way collar structure is meant to kick in and begin contributing hedge benefits when we began to consider cutting capital from the projects that would have been funded at a higher price. So really to do exactly what we're demonstrating now in this price environment in the 50s, we have hedged revenues and those give us time and blunt or mitigate the sharpest impacts of the falling price file, give us time to make the CapEx changes necessary while the portfolio is still strong.

Speaker 1

And so the 45% is anchored to the balance sheet. Essentially what we said was, as long as leverage remains above one turn, we will maintain kind of 40% to 50% leverage on or sorry, 40% to 50% hedging on our net crude, total net crude production. We also have gas hedges and basis hedges and things like that that are available for review. But for the sake of illustration, the point is we stay at 45% through 2025 and that protects us at 60%. So it's both anchored to the balance sheet and anchored to the quality of the assets.

Speaker 1

In terms of going out in 2026 or hedging at higher floors, we would like to do both. The difficulty is always when you take a higher floor, you have to accept a lower ceiling in this two way collar structure that's fundamental of course. The other problem is because TI has been drifting down into the right for a period of time, and a lot of the price action when it hasn't been drifting down has been in the very short dated contracts, there hasn't been a very good opportunity for us to extend this $60 floor out into 2026. If we get an opportunity, we will absolutely take it according to our hedge structure.

Speaker 5

Great. Appreciate that color and context there. My second question is just really around, I guess around the balance sheet and from your prepared remarks, we frankly agree on not really having any concerns around debt maturity. But can you talk like and understanding that one of the inputs is obviously commodity price, but can you talk towards the inputs around your decision to shift 100% of excess free cash flow after the dividend towards debt repayment? Is this purely commodity driven?

Speaker 5

Is there like a debt level that you're focused on before you kind of re kind of think about shifting back towards share buybacks and repurchases?

Speaker 1

Yes. Thank One of the things that we consider important in the discussion around important the dividend is to our shareholders and we remain committed to maintaining the quarterly dividend. We consider the share repurchasing plan more of a discretionary plan and when prices fall and appear to be weak in the near term forward price structure, it seems like that discretionary shift away from share buybacks and in favor of continued debt reduction and of course funding the dividend seemed like the prudent thing for us to do. So while repayment is our near term priority, our shareholder return framework continues to include the dividends and when it's appropriate share buybacks. We just thought at this moment in time, it was more appropriate to focus on funding the dividend and focusing on debt reduction.

Speaker 1

We will continue to carefully monitor the market conditions and provide updates along the way. But we wanted to focus on delevering for long term shareholder value creation, staying disciplined on how we allocate capital, which I've talked about a little bit earlier. We do point out in parts of our investor deck that we're sort of differentiating between kind of near term and long term. In the long term plan, we absolutely believe that share buybacks have place. In the short run, the near term, we think this is the most prudent use.

Speaker 5

Thanks Eric. Really appreciate that color as well. I'll turn it back.

Speaker 1

Appreciate it Dennis. Thank you.

Operator

And the next question comes from Greg Pardy with RBC Capital Markets. Please go ahead.

Speaker 6

Yes, thanks. Good morning. Maybe to build off that a little bit, Eric, could you speak to just what the quarterly cadence looks like in terms of CapEx and maybe equivalent production over the year, over the balance of the year?

Speaker 1

Yes. Good morning, Greg. We're looking at, so let's just anchor on Q1, it's in the rearview mirror, but let's start with that on CapEx, $4.00 5,000,000. Q2, we're looking at about $375,000,000 in Q2. Q3 is a little lighter at $275,000,000 and then the balance comes in at Q4.

Speaker 1

And that should result in a production profile that's about 147,000 BOE in Q2, '1 thousand BOE a day. Q3 would be up from there around 151,000 BOE a day and then Q4 drifting down just a little bit to 150,000 BOE a day. Of course, are error bars on all of these, Greg, but that's kind of the way we're thinking about the current CapEx and production profiles.

Speaker 6

Okay, thanks. Maybe related, I know the thinking is second half is where more of the deleveraging occurs. Perhaps a question for Chad, but what are your expectations maybe if you run at futures now or whatever your internal best estimates are in terms of where you think your net debt level would land towards the end of the year, like just roughly?

Speaker 2

Yes. Thanks, Greg. I think you said $60 for the rest of the year, that's around $200,000,000 of free cash total. Obviously, we have $50,000,000 in the rearview mirror. That would be taking roughly $100,000,000 off the debt.

Speaker 2

Now the other factor is actually running forward on the FX, which the Canadian dollar has strengthened relative to the U. S. Dollar. On a Canadian dollar basis, that will impact kind of the net debt at the end of the year, but that's a tough one to predict. But $50,000,000 of free cash Q1, another 150,000,000 at $60,000,000 we'll fund the dividend after that, which is another 50,000,000 So about $100,000,000 off of debt prediction for the balance of the year.

Speaker 6

Okay, understood. Thanks very much.

Operator

This concludes the question and answer session from the phone lines. I'd like to turn the conference back to Brian Ector for any questions received online.

Speaker 1

All right. Thanks, Steve. I have had a number of questions come in. A number are related to the shareholder return framework, the debt reduction plan and a couple of comments on just share price performance. I'm going to summarize a few for the team here.

Speaker 1

And Chad Chalmakoff, our CFO. I'm going to ask you this first question. As part of the debt reduction plan, a couple of people here on the webcast have noted that where our bonds are trading in the open market, maybe you can provide some context of where they are trading and would purchasing the bonds be part of a debt reduction strategy?

Speaker 2

Yes. Thanks, Brian. I think I don't know where the bonds are trading today. I think they definitely have traded down here below par over the last few weeks here with the commodity price weakness. As we talked about in the prepared remarks, we have ample liquidity on the credit facility, over $1,000,000,000 here at quarter end.

Speaker 2

So I think we always want to try to balance between pre payable debt and fixed term debt. I think the pre payable debt is for sure at a lower point in the cycle here. I think repurchasing the bonds over time is always part of the plan. Think it is today

Speaker 1

an opportunity than it had in the past as well. So definitely something we're considering. Okay. Thanks, Chuck. Eric, the we've touched a little bit on this with the prepared remarks and with the analysts, but with the current weakness in WTI and we've noted where it's trading, what are the additional levers that Baytex can pull?

Speaker 1

Thanks, Ryan. The business is designed to weather periods of low oil prices. We talked about the hedge book, we talked about the liquidity and the strong duration of both the term notes, but also the 2028 facility in excess of 1,000,000,000 of liquidity. And we are designed to stay resilient even when the macroeconomic environment is challenging as it is today. And so we remain committed to maintaining shareholder returns.

Speaker 1

We are focused on balancing capital allocation, which we have discussed And we're focused on long term sustainability. The levers, enhancing operational flexibility and focusing on things we control, I mentioned before. This is key to operators. Maintaining capital discipline, prioritizing our highest returning projects across our portfolio. And we've demonstrated, I mentioned where the $50,000,000 came out between the midpoint of our prior guidance and the current bottom end guidance.

Speaker 1

Given the current commodity price environment, we expect full year capital expenditures to come in at the low end and that reflects the disciplined capital allocation and where we're pulling them out. Suspending the buyback to preserve cash and prioritize debt repayment, again, a lever and the hedge program, which now with the backwardation taken out of the forward structure, hopefully price improvements may give us an opportunity to extend that, we will be watching. And I described our thinking, we want to be reasonably transparent about that thinking and what we want to do to continue to extend that floor forward in time. So the hedge book and the long duration liquidity in the credit facility, those give us a lot of defensiveness and a lot of opportunity over time. We have a lot of flexibility in our plans in both sides of the border and in all plays, and we are not at all afraid to exercise that flexibility when the adjustments become necessary.

Speaker 1

And we'll tell you as soon as we're prepared to make those changes. Eric, another question coming in around shareholder returns that relates to the dividend. Some comments around would you increase the dividend to reward shareholders, others around in this pricing environment, would you consider cutting the dividend? What are your thoughts around the dividend? Yes, I mentioned earlier just how important the dividend is to our shareholders and we remain committed to maintaining the quarterly dividend.

Speaker 1

That said, it's a complex and challenging environment. The board and management, we talk all the time, we're continuously evaluating the options and we are committed to making the right decisions for the long term. So debt repayment is the near term priority. Buybacks have been suspended in the near term. The dividend is very important to us and we remain focused on ensuring that it is funded.

Speaker 1

And our focus remains on delevering. So I think that covers it. I might have repeated myself in that answer from an earlier commentary, but I think it's worth reiterating. Okay. Thanks, Eric.

Speaker 1

I want to shift a little bit. We have one operational related question coming in on the webcast. So and this would be for Chad Lundberg, our Chief Operating Officer. We had talked several quarters ago about some of our Clearwater discoveries, notably the Moranville, just North of Edmonton, as well as what we're doing up at Peavine. So Chad, maybe can you just provide an update on this development plan, what we've done to date and what we're seeing with the results?

Speaker 3

Sure. You bet, Brian. Thanks. We continue to capitalize the Peavine as we've talked and all know it's a world class asset, one or two of these in your career paying out in certain oil price environments in weeks today in months. So we continue to run two rigs up in the Peavine.

Speaker 3

As you know, late last year, we made swap into incremental lands just on the north side of our position. So we're pretty excited about that and thinking about how we start to capitalize it. We also have the Westcott assets that we picked up last year. We developed another four wells in the play, are excited about the results we're seeing. But more particularly, we put a program of Strat wells into the property through Q1, and there's nothing really to say about it yet.

Speaker 3

They take time to really piece through and understand what they're telling us. But we really do see those as key along with the production results to unlocking the value there. And then I think Brian, you asked about the REX or the PV down in the Moranville area. We brought another five wells on stream this year. Some of those were drilled in Q4, the good bulk of them were continuing to see strong results there.

Speaker 3

As per the current capital plan, we don't go back until likely next year into 2026, of course, pending oil prices. Based on the economics though, if we were to catch a tailwind on oil, it's hard to think about that right now. In the current environment, it would certainly be a spot that we could think about capitalizing sooner than next year. So Brian, I think the only other one I didn't touch on is just the Waseca. Have to point out, we're continuing to develop some of the farm and acreage that we've entered into the last couple of years.

Speaker 3

And again, 2025 is more of a focused development program with 2024 really setting the table for how we're developing up in that Northeast Portion of Alberta right now.

Speaker 1

Perfect. Thanks, Chad. And one more related question to the operations, and this ties back to the Eagle Ford. Can you comment or provide an update on sort of refrac initiatives and opportunities that we're seeing down in Eagle Ford?

Speaker 3

Yes. I mean, refracs, we're continuing to be excited about. As we've talked in the past, we've put two into the ground over the past two years now with strong results. Two more are being executed on now. Actually, we just finished fracking one through Q1.

Speaker 3

It's on stream, looking strong, too early to really talk results. It's been a matter of days. And then the second one actually right now as we speak is the frac pumps are just spooling up to start fracking it. They continue to be a strong part of we think the future opportunity. And then of course, when we took over the property, it was something we committed to allocating capital to, to just really further delineate and understand it.

Speaker 3

So I guess, to wrap that up, hoping in the next quarter results to be able to maybe talk a little bit more about these two refracs we've put online.

Speaker 1

Yes. Thanks, Chad. Eric, we have time for a couple more questions. One relates to asset sales, which would Baytex or asset sales, let's put it this way, our asset sales on the table as part of our strategy to delever or improve share price performance. Thanks, Brian.

Speaker 1

We regularly review the portfolio and we ensure in these reviews that we're focusing on the assets that deliver the most value. The reviews include evaluating our capital structure, optimizing capital allocation, efficiency opportunities that we may not have seen or may not have yet capitalized on. So while we're not in a position to comment on the plans specifically, the decision will be guided by disciplined valuation, as I mentioned earlier. And all the auctions are intended to ensure alignment with strategic priorities and we'll keep this conversation alive as it is focused on our long term goals. So continue to listen, continue to focus on long term shareholder value creation and any decisions that were made with regard to this will be focused on delivering sustainable long term value to shareholders.

Speaker 1

Thanks, Eric. And the last question, there were a couple come in, just around the share price performance, the market not recognizing the value that we believe the company has in the share price. Eric, what steps are you taking to address the underperformance of the shares, say, for what we've seen over the last year? Yes. Thanks, Brian.

Speaker 1

We share the frustration regarding the share price performance. And we don't think and I've said this before, but I'll just reiterate it. We do not believe it's an accurate reflection of the quality of the business. And we don't think it's an accurate reflection of the long term value creation potential of the business. So we're taking thoughtful and proactive measures.

Speaker 1

I spoke about the evaluations earlier to address this, including guiding our capital program to the low end of the range. We think that's prudent. It's very early in this kind of ensuing price war, but we made that step and also made the return of capital step regarding spending in the near term our share buybacks. So we're focusing or prioritizing free cash flow. We're prioritizing debt repayment and we are prioritizing strengthening the current financial position of the business, which in terms of liquidity and duration is already quite strong.

Speaker 1

We have a lot of flexibility in our capital plans. We have been structured to weather these and we're ready to make further adjustments in capital allocation where appropriate. So we're focused on remaining focused on managing the remaining factors that we can control and delivering long term value. That's great. Thank you, Eric.

Speaker 1

And that does, I think, wrap up the webcast portion of the Q and A today. So I think as we reach the end of today's call, I would like to thank everyone for participating. And with that, thank you, operator, and thanks to everyone for participating in the first quarter conference call. Have a great day.

Operator

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Powered by Quartr
Earnings Conference Call
Baytex Energy Q1 2025
00:00 / 00:00