Baytex Energy Corp. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: Q3 generated CAD 220 million of free cash flow, returned CAD 101 million to shareholders via share buyback and dividend, and reduced net debt by 5%. Q3 adjusted funds flow was CAD 538 million (CAD 0.68 per share) and net income was CAD 185 million (CAD 0.23 per share). Benefited from ~CAD 22 million in one-time items.
• Debt Reduction: Net debt at September 30, 2024 was CAD 2.5 billion, down 5% from June 30, 2024. Total debt was CAD 2.3 billion, with a total debt to EBITDA ratio of 1.0 times based on trailing 12 months EBITDA.
• Operating Results: Eagle Ford production up, Canadian light oil showing growth, and Peace River well successful with exploration and development success.

Segment Performance

• Eagle Ford: Production averaged approximately 90,000 BOE per day, 82% oil and NGL, up from 87,000 BOE per day in Q3 2023. Brought on 17 operated wells. Year-to-date, operated drilling and completion costs per completed lateral foot improved by 8% compared to 2023.
• Canadian light oil (Pembina Duvernay): Production averaged 7,600 BOE per day, 83% oil and NGL, up from 4,800 BOE per day in Q3 2023. Second pad of 4 wells brought on stream in August, with strong production results.
• Other segments: Balance of portfolio performed well, including Viking light oil and heavy oil. Peace River Blue Sky well on 66 net sections of land was successful, representing the 4th discovery in 4 years in heavy oil across ~600,000 net acres.

Guidance

• 2024: Anticipates full year 2024 production of approximately 153,000 BOE per day, with exploration and development expenditures of approximately CAD 1.25 billion, both trending to the midpoint of original guidance.
• 2025: To release budget in early December. Intends to budget a 7-9 well program for the Duvernay in 2025, with plans to ramp up to 9-12 wells in 2026 and 12-15 wells in 2027 depending on performance and commodity prices.

Risks

• Commodity Price Volatility: Fluctuations in oil and gas prices can impact revenue and cash flow, though hedging strategies are in place.
• Operational Risks: Issues with drilling, completion, or production that could affect results, although efficiency measures are ongoing to mitigate such risks.

Question and Answer

Q: Could you frame out your drilling plans and expectations for your Duvernay asset?

A: We are in the demonstration stage for the Duvernay. In 2025, we intend to budget a 7-9 well program. If performance continues to improve, we would ramp up to 9-12 wells in 2026 and 12-15 wells in 2027. This is price-dependent, but we expect strong economics and capital efficiencies from the play.

Q: Give more color on the Peace River, Oak of Blue Sky well?

A: The well is on 66 net sections of land, a private farm-in. It's the 4th discovery in 4 years in heavy oil across ~600,000 net acres in the Peace River area. We've had success with laterals and expect to continue successful efforts around the acreage.

Q: Elaborate on current hedging strategy?

A: Crude oil hedging has a CAD 60 floor, with calls sold to fund the put floor. As of 2025, we're hedged around 45% on crude oil volumes and ~50% on gas volumes with collar structures around CAD 3.10 to CAD 4.25 for gas.

Q: Target mix of credit facilities?

A: We prefer a term debt structure, aiming to have more term debt and reduce revolving facilities, with flexible term debt that is market deep.

Q: Gas volume shut in and Eagle Ford refracs?

A: Little gas shut in due to associated gas with oil. Refracs are used as supplemental with capital efficiencies, used sparingly and as opportunities arise for industrial efficiencies.

Q: Capital efficiencies?

A: Pembina Duvernay is highly capital efficient, with top quartile efficiencies. Efforts to pull this inventory forward to increase its share of production, offsetting poorer efficiencies elsewhere. Ongoing efforts to drive further efficiencies through operational improvements and cross-border learning.