Q4 2019 Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Baytex energy Corp. fourth quarter and year end conference call and webcast.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
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I would now like to turn the conference over to Brian Actor Vice President Capital markets. Please go ahead.
Thank you Eric Good morning, ladies and gentlemen, thank you for joining us today to discuss our fourth quarter.
Full year 2019 financial and operating result.
With me today, you read the fair or President and Chief Executive Officer, Rod Gray Executive VP, and Chief Financial Officer Candle, Arthur Vice President heavy oil and CEB Lundberg, Vice President light oil.
Well listening please keep in mind that some of our remarks will contain forward looking statements within the meaning of applicable securities laws.
I would refer you to the advisories regarding forward looking statements oil and gas information and non-GAAP went out to one capital management measures in today's press release.
On the call today, we will also be discussing the evaluation of our reserves at year end 2019. These evaluations have been prepared in accordance with Canadian disclosure standard, which are not comparable in all respects to the United States or other foreign disclosure standards.
Our remarks regarding reserves are also forward looking statements.
All dollar amounts referenced in her remarks are in Canadian dollars unless otherwise specified.
With that I would now like to turn the call over to add.
Thanks, Brian and good morning, everyone I'd like to welcome everybody to our year end 2019 conference call. As a reminder, we released preliminary unaudited financial and operating results on January 20, 2020 in conjunction with the release of our 2019 reserves.
Our audited financial and operating results for the three months and a year ended December 31, 2019 are unchanged from the preliminary results.
These results demonstrate the benefits of our diversified oil weighted portfolio and our commitment to allocate capital effectively generate free cash flow and further strengthen our balance sheet.
Well, we have done a publicly listed corporation for more than 25 years, we're taking steps to systematically transformed baytex, we've shifted our portfolio to predominantly high operating netback light oil assets, while also reducing our cash cost structure and improving capital efficiencies.
More recently, we have refinanced our long term notes and extended the term of our revolving credit facilities to 2024.
These steps give us the confidence of flexibility to execute our business plan to continue driving free cash flow and strengthen our balance sheet.
I'll pass the call over to Rod Gray, our CFO at a few minutes to elaborate on the debt refinancing.
2019 was an exceptional year operating results were strong.
We maintain diligent capital on cost control and we delivered on every facet of our business that we control.
We produced 97680 be always per day, 82% liquids exceeding the high end of our annual guidance, while capital expenditures were at the low end of our annual guidance at $552 million.
Production during the fourth quarter average 96360 Boe per day, and we have all of our cost targets with operating expenses, averaging $11 per Boe we.
In general and administrative expenses under $1.30 cents per Boe.
For 2019, we generated EBITDA of $1 billion and free cash flow of $329 million.
And our 25 year history. This is the highest level of EBITDA and free cash flow that we have ever generated.
And we delivered on operating netback, including hedging of $29 per BOE, we representing a 39% improvement over 2018.
We also reduced our net debt by 17% for $393 million due to the strong free cash flow and the strengthening of the Canadian dollar relative to the U.S. dollar.
We redeemed or U.S. hundred $50 million principal amount of six in three quarter percent senior unsecured notes nearly two years early.
We also demonstrated reserves growth with prison proved developed producing reserves increasing 5%.
And again development costs at $13 per BOE, we add to recycle ratio of 2.3 times.
In aggregate, we replaced 112% for 2019 production, adding 40 million BOE ease of proved plus probable reserves through our development activities.
In the Eagle Ford strong well performance continues to be driven by enhanced completions across our acreage position in the Viking over 90% of our drilling was extended reach horizontal wells.
In our heavy oil assets, we delivered stable production with limited capital investment.
And we continued to advance our do Vern a light oil asset with two of the best wells from the shale basin.
We also recognized that developing environmentally and socially responsible energy plays an important role in raising the standard of living of people around the world.
In 2019, we continued our excellent health safety and environmental performance and published our fourth corporate sustainability report.
This report demonstrates our commitment to transparency and to managing the environmental and social impacts of our business. We have elevated our standards, establishing a target to reduce our greenhouse gas emissions intensity by 30% over the next three years.
We believe our safety and environmental leadership will serve us well as we continue to adapt to changing market conditions.
I would now like turn the call over to rod to elaborate on our debt refinancing.
Thanks, and good morning, everyone. In 2019, we set a priority to strengthen our balance sheet as Ed mentioned, we delivered on that commitment with a 17% reduction in our overall net debt.
Subsequent to year end, we further improved our financial position, taking several important steps to adjust to adjust our debt capital structure.
First we enhanced our long term note maturity schedule, which provides us significant flexibility and liquidity to execute our business flat.
On February 5th we issued Usfive hundred million dollar some senior unsecured notes at 8.75% the mature on April 1st 2027, These notes or redeemable at our option and holder in part and specified redemption prices. After April one 2023.
Using the net proceeds from the new 2027 notes, we redeemed U S 400 million up 5.1% to 5% senior unsecured notes due June 2021 at car on February 20 20-F.
We've also issued a redemption notice for the 300 million Canadian 6.6% to 5% senior unsecured notes due July 19th 2022, and those will be redeemed March six 2020 at one or 1.1% of the principal amount.
Following these redemptions are only to long term note maturities will consist of the U.S. 400 million dollar note due June 2024, and the new Usfive hundred million dollar no due April 2027.
Second we amended our credit facilities to extend the maturity of our revolving facilities and term loan. Both the April 2nd 2024, the credit facilities, they're not boring base facilities and do not require annual or semi annual reviews. Our facilities total approximately one point all $5 million.
And and include.
You at 575 million of a revolving credit facility and a 300 million dollar term loan following the Usfive hundred million dollar notice you and the redemption of both the U.S. 400 million dollar and Canadian 300 million dollar notes our credit facilities are approximately one third undrawn with over 300 million.
End of liquidity and an overall weighted average interest rate of approximately 6% combined these changes have extended our debt maturities and confirmed the available credit from our bank syndicate.
Thanks, Rob given the volatility in our capital markets today, we're very pleased with our improved capital structure and the significant flexibility and liquidity we have today.
Let's now turn our attention to operation starting with light oil Eagle Ford and Viking assets production in the Eagle Ford averaged over 38000 barrels per day during the fourth quarter 2019, and 39000 BOE per day for the year in 2019, we invested $178 million on exploration develop.
In the Eagle Ford and generated an operating netback of $416 million. This led to prolific cash flow of $238 million at an asset level.
We commenced production from 25 net wells the wells brought on stream. During 2019 delivered average 30 day initial production rates of 1900 Boe per day per well and 8% improvement over 2018 wells.
Production in the Viking averaged 22000 Boe per day.
During Q4, 2019, and 22500 BOE per day for the full year 2019.
We invested $266 million on exploration and development in the Viking and generated an operating netback of $349 million. This led to $80 million of cash flow at an asset level.
We drilled 244 net wells and commenced production from 240 net wells approximately 25% fewer wells in 2019 versus 2018 to hold our production flat.
We also added 229 high quality net drilling opportunities through multiple deals and asset swaps in the Viking.
Moving to our heavy oil assets in Canada Peace River and Lloydminster produced a combined 30000 Boe per day during the fourth quarter and 29000 BOE per day for the full year 2019, we drilled 40 net heavy oil wells, including 34 net wells at Lloydminster and six.
That wells at Peace River, we invested $80 million on exploration and development on our have you all assets and generated an operating netback of $188 million. This led the cash flow of $108 million had an asset level.
Finally in the East shale do Bernay, we continue to advance the delineation of this early stage high Netback light oil resource play in Q1 2020, we drilled two wells at Pembina and completion activities are scheduled for Q2 2020.
The success of our drilling program in the Pembina core area has significantly de risked are approximately 38 kilometer long acreage fairway, where we hold 275 sections of 100% working interest today last.
Let's turn to risk management.
We continue to manage our commodity price risk through an active hedging program in 2019, we realized a financial derivatives gain of $76 million.
All of our 2020 hedges are quoted in us dollars.
For 2020, we have hedges on approximately 48% of our net crude oil exposure largely utilizing utilizing three way option structures that when WT eyes between 50 and $58 per barrel, we received $58 per barrel and.
And when WCS WTI is below $50 per barrel, we received W. T plus about $8 per barrel.
The contracts also provide upside participation to approximately $63 per barrel.
Our hedges also include WT based fixed price swaps for 3500 barrels per day at approximately $57 per barrel.
We also have in place both light and heavy basis differential swaps.
For our light oil in Canada, we have W. tee it up to MSW basis differential swaps were 4250 barrels per day at $6 in 19 cents per barrel.
For our heavy oil we have WCS differential hedges on 5500 barrels per day at a WT tied to WCS differential of $16.25 per barrel.
Additionally, crude by rail is an integral part of our aggressive marketing strategy for 2020, we have contracted 11500 barrels per day, approximately 40% of our heavy oil volumes to market by rail.
Full details of our hedge program can be found in our year end financial statements.
So now let me conclude by saying.
We have a high quality and diversified oil portfolio with an extensive inventory of drilling opportunities. We have a strong team and board all aligned and driving our strategic operational and financial direction.
Our commitment to shareholders remains to deliver stable production generate free cash flow and further strengthen our balance sheet.
Our 2020 annual guidance remains unchanged as we target production of 93000 to 97000 Boe per day.
With exploration and development expenditures of 500 million to $575 million.
For Q1, 2020 production is trending above 97000 Boe per day with exploration and development expenditures of approximately $200 million consistent with our plan and capital guidance range.
Our exploration and development program is expected to be fully funded from adjusted funds flow at the forward strip.
And we have the operational flexibility to adjust our spending plans based on changes in commodity prices.
So with that I will ask the operator to please open the call for questions.
Thank you we will now begin the question answer session to join the question Q You May Press Star then one on your telephone keypad, you will hear Tom acknowledging your request.
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Our first question comes from fills skolnick of eight capital.
Yes, thanks, good morning, just.
What you're saying about your Q on production and the Capex spending in Q1, how should we think about the cadence of throughout the year, both spending and kind of higher production profile should look.
Through each of the quarters. Thanks.
Yes. Good question, we typically come out with a fairly strong Q1 program and no different this year.
Where we're generating above high end guidance on production.
In Q2, we move that capital down considerably. So in Q2 April and May are very limited.
In our Canadian assets spending.
And overall, so we don't pickup activity until about June and we typically will use April and may to recalibrate, our views of the macro what's going on with pricing, where our cash flow is and will make calls on our second half program during that period, but we fully expect.
To be free cash positive in the first half the year high Capex in Q1, very low capex in Q2.
Strong hedge book.
Pricing on the differentials.
Yes, good our railing programs have been essentially honored interrupted on a week to week basis, we Miss railcars on day to day based but week to week month to month, we're fine on blockades and things like that so we're eager assessing all of our crude we're looking strong for the first half of the year and we'll make those calls fill on second half year.
Our program in April and May, but expect production to be high in Q1, it moderates through breakup and Q3, and we start coming back strong for the end of the year.
Okay. Thanks, and so is the Q1.
Production rate I mean, I guess and that was due to Q4 activity.
So how did your how did Q how did you exit the year and production Wise 1996, 300 was our Q4 number.
December number was a little bit north of that but not much.
So about 97, and Weve basically been holding that pretty flat.
But it's also providing.
New resources and pull through to Q2 in Q3, so it does give us those.
Additional barrels coming through the rest of the year.
Okay. Thanks, and then my my final question, just yeah, we've seen differentials crossword MSW and WCS narrowing significantly are you going to look to the maybe take advantage that has a bit more as well.
Yes, let me hit that in the second on the differential we have been hedging their but part of the reason for Q1, Capex being where it is the duvernay and we did drill and case two wells.
The exciting in that we've got those two wells down and ready to be Fracked in June and July.
So there right in the heart of our our best acreage and we did spend the money in in Q1.
With obviously no production so that was a bit of the spending in Q1.
But on hedging yes, we did layer on a couple of recent WCS.
Heavy oil differential hedges were getting those around $16 a barrel so our averaged out $16.20 as I mentioned on the financial derivatives.
And we put on some attractive rail contracts there at the end of sort of Q4. So we've been layering in the other thing we've done is on MSW, where it's moved into $6 a barrel we've been layering on.
Some hedges there as well, but all of those those additional hedges are included in the numbers I just quoted.
Great. Thanks, a lot.
Our next question comes from Greg Pardy of RBC capital markets.
Thanks, Good morning couple of questions, but I'm going to turn Phil's question around a little bit.
Would you consider are really monetizing.
You know the hedges that you've got in place now I think I know the answer the question, but it but it's it's a big number like it's over $100 million.
Sitting on the books now just just curious as to how you think about that very very important protection for us I'll, let rod Gray address the question that we have looked at it recently.
Hey, Greg.
We have looked at it but the fact is we've got the three way structures in place and.
You've actually got two contracts that are probably out of the money in one thats in the money so you'd be doubling down on the call back I think we're a little north of depending on your time. When you look at it there was $90 million to $100 million of value in the call. It puts that we owned.
But there's also exposure on the other.
The call and the the other sold to put that we have out there, but we utilize the hedging program to to moderate our cash flow and our expectations and we're not looking to take speculative positions on that so we wouldn't be looking to monetize that right now.
Okay. Thank now it's a good thing it's a good thorough answer.
The other I mean, maybe again, just a little bit of but felt was asking I mean should we expect more than 97000 Delia day in one Q.
Yes, we said, we're trending above 97000 barrels today and I would say comfortably above 97000 barrels a day. So we've got another month ago and.
Close here shortly okay.
Okay and the last thing is I mean, you you alluded to capital flexibility.
As to what you're going to do in the second half, but let's just say you you decided to to scale back to capital spend we know you don't need to but if you did where would you take it words take the dollar set up.
Yeah, we would probably at this point in time take it out of the heavy oil program, that's again premature there but.
What I'm talking about is moderating down the low end the guidance I think thats kind of where we're not talking about outside of guidance at this point, we see our cash flow, how we see the year.
Yes, everybody's panicked on pricing, but even as I said at the forward strip.
With a strong hedge program with a strong set of operations underneath us we are projected to be fully funded at the strip price within guidance. So you know that could be 500 million and capital versus the midpoint of 540 and trending.
Still within our guidance on production so I'm not in.
Theres no reason, we need to be talking outside of our guidance at this point.
Okay, and again all of that would really be the Canadian heavy heavy program.
Yes, maybe not all we will look to we might do some trimming and some other areas, but the heavy oil program with differentials, where they are now is similar to where we were at budget time when WT I was at 55 or 52 to 55 and the differential was between 17 and $20.
We're not seeing.
You know the heavy oil margins.
Drifting away on us there, they're drifting down for sure as everything is but they are still good profitability in the heavy oil program. So we'll see where we get on that Greg, but certainly a chunk of the reduction in our capital program would come from heavy oil.
Terrific. Thank you.
Our next question comes from David Popowich of CBC.
Hi, Thanks, My questions have already been asked thanks guys.
Thanks.
This concludes the question and answer session I would like to turn the conference back over to Brian Act or for any closing remarks.
Thank you area. Thanks, everyone for participating in our year end conference call today have a great data.
This concludes today's conference call you may disconnect your lines, thanks for participating and have a pleasant day.
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