Q1 2020 Earnings Call

May 8, 2020

Thank you for standing by this is the conference shot breeder.

<unk> to the Bay text energy first quarter 2020 results conference call.

Reminder, all purchase it then our local only about and the conference as being recorded.

After the presentation, there will be an opportunity to ask a question.

Joined the question Q. you May press start spending one on your telephone keypad.

Should you need assistance during the conference call you may signal and operator by pressing start and zero.

I would now like to turn the conference over to Brian actor, The Vice President capital markets. Please go ahead.

Oh, Thank you operator, good morning, ladies and gentlemen, and thank you for joining us today to discuss their first quarter of 2020 financial operating results.

With me today rubber fair or President and Chief Executive Officer, and Rod Gray executor Beep key in Chief Financial Officer.

I also have on the line from their work at all stations today Candle Arthur Vice President heavy oil.

<unk> Vice President Finance.

<unk>, Vice President White oil and Scott Love, It or vice President of corporate development.

Well listening please keep in mind that some of our remarks will contain overlooking statements within the meaning of clickable security slow.

I refer you to the advisory regarding forward looking statements.

Oil and gas information and non gap financial in capital management measures in yesterday afternoon press release.

Oh dollar amounts referenced in our remarks, where I'm Canadian dollars, unless otherwise specified and with that I would now like to turn mccall over to add.

Brian and good morning, everyone I'd like to welcome everybody to our first quarter 2020 conference call before we begin I would like to take a moment and acknowledge all of the front line healthcare workers at a central service providers across Calgary and in the communities, where we operate for all of the tremendous work they've been doing throughout the code.

Crisis.

Many of our employees have family members or friends on the front lines and we are very grateful for their effort.

Half of the entire Baytex family and all of our stakeholders. We thank you.

I also want to acknowledge our employees who have responded to this just unprecedented challenge our industry is facing with the poison commitment that we have all come to expect.

We have implemented a number of measures to foster resilience through these unpredictable times, including a work from home program and altering shifts in the field.

We're focused on protecting the health and safety of our personnel, while maintaining our operations and today.

We have had no positive cases of covert 19 within the company.

The demand destruction as the global economy has shot down the resulting collapsing the crude oil prices and the uncertainty over the duration of this downturn constrain any organization.

I'm very proud of our team and how we have responded.

Market conditions have changed during the first quarter, we moved quickly to adjust her business plan, we curtailed exploration and development spending in March which resulted in capital spending of $177 million, 12% lower than our original expectation.

Approximately 70 per cent of our capital was directed toward her operate it assets in Canada, where we have had a very active program in both the Viking in heavy oil.

We generated strong production of 98400 be always per day, which was ahead of the top end of our guidance for the year, we delivered adjusted funds flow of $133 million or 24 sounds per basic share in generated an operating that back of $16 in five cents per be a week.

All of our business units executed flawlessly during the quarter and delivered exceptional results production and the biking average almost 25000 be always per day, which is the highest rate ever achieve for the asset are heavy all business unit delivered over 31000 be always per day and the Eagleford remain concern.

At over 36000 to be always per day.

When oil prices started to decline is the first quarter unfolded our priorities changed.

We moved aggressively to shift or operating and capital activities to maintain financial liquidity.

Minimize capital outlays and emphasized cost reductions across all facets of our business to retain long term value.

We previously announced a 50% reduction at our capital spending for this year to $260 million to $290 million from $500 million to $575 million originally.

Well this revised capital program, we suspended drilling Incompletions operations in Canada, and expect a moderated pace of activity in the Eagleford.

Oh.

We're also intensely focused on driving further efficiencies in our operations, we have taken actions to achieve $135 million of cost reductions for 2020 related the operating transportation and general administrative expenses.

We are also voluntarily shutting and approximately 25000 <unk> per day of production.

This includes approximately two thirds of our heavy oil production and 15% of our light all production.

We currently expect to heavy all volumes were will remain off line for the balance of this year.

For the light all assets about 5000 barrels per day production has been shut in for April and May These volumes will be evaluated monthly and we currently anticipate production resuming in the second half of the year.

While these decisions are never easy at current commodity prices to shut in of these barrels we'll have a positive impact on our adjusted funds flow improve our financial liquidity and optimize the value of our resource base.

Should operating Netbacks change, we have the ability to restart wells in short order or shut in additional volumes.

Taking into account the incremental shut in volumes, we revise reproduction guidance range for 2020 to 70000 to 74000 <unk> per day from 85000, the 89000 be always per day previously.

Mentioned earlier are $135 million of cost reductions.

I commend the work of our field teams to dry further efficiencies during these challenging times.

On a per unit basis or operating expense guidance is unchanged as we flux down all variable costs and mitigate some fixed costs associated with our field operations.

In addition, we're realizing that approximate 25% reduction and transportation expenses due to reduce volumes.

We're also reducing our G.N.A. expense by 11% to $40 million.

While this might get overlooked in today's environment inventory enhancement continues to be a priority for our teams.

And we are also committed to building and maintaining respectful relationships with indigenous communities in creating opportunities for meaningful economic participation.

In the first quarter, we executed a strategic agreement with the P. volume made T. settlement in the Peace River area that cover <unk> 60 sections of land directly to the south of our seal operations.

We have identified significant potential for this early stage exploratory play targeting the spirit rubber formation Clearwater formation equivalent with first activity planned on the land for 2021.

I will now turn the call over to rod to discuss our balance sheet and risk management.

<unk> and good morning, everyone.

I'd mention the demand obstruction cause from shutting down the economy to prevent the spread of the Corona virus combined with an increasing supply crude oil from Russian Saudi Arabia's caused an unprecedented dropping crude oil prices. This declining prices combined with the economic uncertainty, let us to recording an impairment during the first quarter up two points.

Billion dollars as the carrying value of our oil and gas at properties exceeded their recoverable amounts. These experiments maybe reversed in the future should commodity price workouts increase or there'll be indications of a change in value.

We had strong liquidity at the end of the first quarter with $417 million avant drawn capacity on our credit facilities, resulting in approximately $350 million of liquidity native working capital requirements. We just got this on our last quarterly conference call, but it's important to reiterate.

During the first quarter, we enhanced our long term note maturity schedule, which provides us with improved flexibility and liquidity on February 5th we issued U.S. 500 million dollar principle amount of 8.75 per cent senior unsecured notes Muttering April 1st 2027, we also redeem two series of notes during the quarter.

On February 20th we redeemed you asked for $100 million June June 21.

And on March 6th we were deemed Canadian $300 million do July 19 2022.

Blowing needs redemptions, our first longterm note maturity of U.S. 400 million dollar is not until June 2024.

We also extended the maturity is on our credit facilities to April 2nd 2020 for the credit facilities are not boring based facilities and do not require annual or semi annual reviews.

We also continued to monitor commodity price risk through an active hedging program, we realize the financial derivatives gain of $27 million in Q1 2020.

For the remainder of 2020, we have entered into hedges on the majority of our crude oil exposure. This is comprised of W.T.I. based fixed price swaps on 2000 barrels a day at $58 <unk> per barrel and a three way options structure on 24000 barrels a day that occurrence oil prices give us W.T.

Plus seven <unk> 760 per barrel.

We have also entered into additional financial hedges to mitigate the volatility in our adjusted fun spoke for the next few months.

This includes hedging 11300 barrels a day for you to 2020 and 21000 barrels a day for July at weighted average prices up approximately U.S. $25 per barrel.

For the remainder of 2020, we have also W.T.I.D.M.S.W. basis differential swabs for 6400 barrels a day on our light oil production in Canada at $6 per barrel and W.C.S. differential hedges on 6500 barrels a day at W.T.W.C.S. differential about $16.

Per barrel.

<unk> is also an integral part of our eat grass and marketing strategy for our heavy oil production.

For 2020, and we had originally contracted to deliver approximately 11500 barrels a day of our heavy oil volumes to market by rail in the current pricing environment, we expect their crewed by rail volumes to be significantly reduced.

Full details of our heads program can be found in our first quarter financial statements and with that altering the call back over to add for some concluding comments.

Okay. Thanks, Rod in this challenging environment. We've responded decisively to protect the health and safety of employees enter dramatically reposition operating activity to maximize our cash flow and minimize the draw on our liquidity.

Are operating teams continue to drive cost savings and prudently shut in production that is currently on economic as I mentioned.

And the refinancing up a lot of our long term notes and extension of our revolving credit facilities to 2024, we're both important steps in improving our financial flexibility and liquidity you couldn't be assured we are working very hard for all stakeholders to make the necessary changes and overhauls to our plan.

Ads in 2020, and this extraordinary environment.

And with that I will ask the operator to please open the call for questions.

Certainly.

Well now begin the question and answer session.

Join the question Q. you May press start spending one on your telephone keypad <unk> Quest. If you are using a speaker phone. Please pick up your handset before pressing any keys.

With try your question. Please press start doing too well pods, you try moment as <unk>.

That's first question comes from <unk> <unk>, but credit Suisse. Please go ahead.

He guys in the same to understand that this that game right now both biking and heavy I hadn't been shot you have indicated that kept me on that is most likely they mean Chuck.

At the same dangled evaluating.

Production every month.

Signed wants to talk process when could you actually looked restock the liking and then walked circumstances <unk> think about bringing back.

If any you wanting to Ya.

Yeah, that's a really good question and having a very dynamic environment. So what I say 25000 barrels a day or shot in depth today, and that's an instantaneous basis and for the month of of May having said that we're looking at opportunities to sell at.

In the range of of margin that gives us a five dollar access over variable costs to a 10 dollar access over variable costs and we're at that point right now and into June. So we've made some spots sales we've done some things.

But so having said that right now 24000 barrels a day of heavy all are shut in and a very small amount of light all the shot in and it's primarily do <unk>, it's not not really Viking.

And in June we plan to bring on a vast majority of all of our lives oil.

And in heavy all we can start bringing on barrels.

If prices not only give us that five to 10 dollar access over variable cost, but if we see.

Some stability and the macro environment that suggests the price of our we're in will be will be stable. So we're looking at that very closely and it's not all or not it comes in traunches. So there's a first troche of barrels that are coming back in June as I mentioned, there's a second traunch that could come on later.

And that it's not a cookie cutter here, it's a very dynamic and volatile situation and our marketing an asset teams are our remaining extremely nimble so the way I would.

Plan in terms of modeling is 25000 barrels a day as what we've said today and that should moderate itself down at 20000 barrels a day for second half a year.

<unk>.

Yeah.

Mmm.

My next question <unk>, but <unk> you know please go ahead.

Yeah. Good morning, just on the cost reductions how much would you say you know would come back you know more normalizing environment and how much is more harm it up for the the corporation.

Yeah really really good question and one that we're working actively right now but of the $135 million a cost savings.

Roughly $80 million of that as objects and another big chunk of that is transportation and then a very small amount of G.N.A., but let's focus on the objects for a moment because some of the transportation costs will come back with volumes and some some of the off X. will as well.

I would give you kind of a 50 50 blend of 50 per said that 135 is due to volumes simply being off and 50% is truly cost savings and deferrals.

Some of that I think we'll come back and so here's some examples inside <unk>, we have a items like you know fuel and.

Maintenance I would say labor you know some of these areas. We're working hard we we furloughed a lot of people and some of those people will be necessary to come back and help bring back those volumes, but not all.

Inventing the way, we're working out there as well and repairs maintenance workovers remains to be seen what we do there were definitely seeing cost reductions into for older. But I would look at it as 50 50 and up to 50 per cent I'm falling cost saving some of that will come back I just don't have a number for you right now.

Okay. No problem just I guess, then on the cost savings from his or anything.

With respect to maintenance cap accent, you're looking to do that then you know we lucked into 2020, while estimates and normalize environment that maybe.

It costs you less to maintain production.

Oh right level maybe.

Well, there's a big category, we call repairs maintenance and supplies and I think all of that as being challenged and looked at to be reinvented or you know look at phasing and type of maintenance and when it's done and how to shelter and more et cetera, but so I don't have an answer on.

And I don't have an answer on how much labor will need to come back either I know all of it will come back.

And we're committed to that but.

But I would say were those are the things we're working on right now Phil.

Okay understood. Thanks.

Our next question comes from Gregory pardon.

Capital markets. Please go ahead.

<unk>.

Yeah.

Just pick one for me.

<unk> <unk> <unk> <unk>.

Okay.

<unk> I'll turn it over to Rod marketing, we're not going to talk about her specific great agreements, but we were running about 12000 barrels a day and Q1.

And we've wrap that doubt about 50% we've shut in almost the entirety of our peace River field, which is a majority of our rail volumes. So we're down to 2000 barrels a day and peace River and therefore, you know when you're talking about shutting in an entire field than that that'd becomes significant.

Her station throughout the value chain into your markets.

Now before I passed over the Rod on anything he wants to add.

Did say rod did say that that railing or volumes to the Gulf coast is a priority long term until we have enough egress pipelines in place. So it is part of our strategy to rail volumes and we have some very important customers that we like dealing with.

But we're down to kind of minimum levels.

I would say both in peace River, and and Lloyd on our rail volumes.

Do you want to add to that.

I I think that's at it you know we've got a good working relationships with our partners around rail and we continue to view crewed by rail is an integral part of getting our product to market.

And thankfully, we've been able to work through this challenging time with the majority of the partners.

Oh.

Mm.

It's kind of that's the question and answer session.

I'd like to try the conference that cover design, Alright closing remarks.

Alright, Thank you operator, and thanks, everyone for participating in our first quarter conference call hovered reading.

It's concludes today's conference call you may disconnect. Your line. Thank you for participating and have a pleasant okay.

Hmm Hmm Hmm.

Hmm.

HM HM.

<unk>.

Hmm.

Mmm.

Oh.

Mm mm mm.

Hmm.

Mm.

Hmm.

[music].

Mmm.

Hmm.

Yeah.

Mmm.

Hmm.

No.

Hmm Hmm Hmm Hmm Hmm Hmm.

[music].

Mm.

Hmm.

Yeah.

Mm.

Hmm.

Yeah.

Mm.

Hmm.

Mmm.

Yeah.

Hmm.

[music].

Okay.

Hmm Hmm Hmm Hmm.

[noise] Hmm.

HM.

Yeah.

Hmm.

[noise] Hmm Hmm.

Hmm.

Hmm Hmm Hmm.

Oh.

Hmm.

[music].

Oh.

HM.

But.

Yeah.

[noise].

Oh.

Mm.

Yeah.

<unk>.

Hmm.

Yeah.

Wow.

Yeah.

Hmm.

Mm.

Yeah.

Hmm.

Yeah.

Hmm.

Yeah.

Wow.

Yeah.

Oh.

Yeah.

Hmm.

Yeah.

Hmm.

Yeah.

Mhm.

<unk>.

Yeah.

HM HM.

Hmm.

Hmm Hmm Hmm Hmm Hmm Hmm.

Hmm Hmm.

Hmm.

Hmm Hmm, Hmm, Hmm, Hmm, Hmm, Hmm Hmm Hmm Hmm.

Hmm Hmm Hmm Hmm.

Hmm Hmm Hmm Hmm Hmm.

Mmm.

Hmm Hmm Hmm Hmm.

Hmm.

<unk>.

Hmm.

HM.

Mm.

<unk>.

Mm mm.

Hmm.

<unk>.

HM.

Hmm Hmm.

Hmm.

Yeah.

Hmm.

Hmm Hmm Hmm Hmm Hmm.

Mmm.

Hmm.

Mm mm.

Oh.

Hmm.

Yeah.

Mmm.

Hmm.

Yeah.

Mmm.

<unk>.

Mhm.

<unk>.

Mm.

<unk>.

Mm.

Hmm.

Mm.

Mmm.

Hmm Hmm Hmm.

<unk>.

Hmm Hmm Hmm.

Hmm.

Mm.

[noise] mm.

Mmm.

Yeah.

Mm mm mm mm.

Yeah.

<unk>.

Yeah.

Mm.

[music].

Mmm.

[music].

Mm.

Yeah.

Mm Hmm.

Mm.

Yeah.

Hmm.

Mm.

Hmm.

Mm.

Mmm.

Yeah.

Mm.

Hmm.

[music].

Yeah.

Mmm.

[music].

Hmm.

[music].

Mm.

Hmm.

Mm.

Yeah.

Mm.

[music].

Yeah.

Mm.

[music].

<unk>.

[noise] mm.

Mmm.

Yeah.

[music].

Yeah.

Hmm.

Yeah.

[music].

Hmm.

[noise] mm.

Mm.

[noise].

Mmm.

[music].

Mm.

[music].

Mm.

[music].

Yeah.

Hmm.

Mm.

[music].

Yeah.

Okay.

And.

Hmm.

Yeah.

Oh.

Yeah.

And.

Yeah.

Right.

Yeah.

Okay.

Oh.

Okay.

Yeah.

<unk>.

Yeah.

[music].

Yeah.

And.

Yeah.

Hmm.

Yeah.

Oh.

Yeah.

Okay.

Yeah.

Oh.

Okay.

Yeah.

Okay.

Oh.

Hmm.

Mm.

[music].

Oh.

[music].

Yeah.

[music].

Mmm.

Yeah.

[music].

Yeah.

[music].

Oh.

Yeah.

<unk>.

So.

Oh.

[music].

Hmm.

Oh.

Hmm.

Yeah.

Hmm.

Yeah.

Hmm.

Oh.

Huh.

Oh.

Yeah.

Huh.

HM.

Yeah.

Oh.

Hmm.

Yeah.

Hmm.

<unk>.

Hmm.

Yeah.

Mm.

Yeah.

[music].

Yeah.

[music].

Yeah.

[music].

Yeah.

Hmm.

[music].

Mm.

[music].

Oh.

[music].

Ooh.

[music].

<unk>.

Ooh.

[music] Ooh.

Ooh.

[music].

Ooh.

[music] Ooh.

Ooh.

[music] HM.

HM.

Mm.

Ooh.

[music].

Yeah.

[music].

Yeah.

[music].

Huh.

[music].

Hmm.

Oh.

Hmm.

[music].

Hmm.

[music].

Oh.

[music].

<unk>.

[music].

Yeah.

[music].

Hmm.

[music].

Yeah.

[music].

Yeah.

[music].

Yeah.

Oh.

[music].

Yeah.

[music].

Yeah.

Hmm.

Yeah.

Wow.

Yeah.

[music].

Yeah.

Okay.

Right.

Yeah.

Wow.

[laughter].

[music].

<unk>.

[music].

Hmm.

<unk>.

Hmm.

Mmm.

Hmm.

<unk>.

Hmm.

HM HM HM.

[music].

Hmm.

[music].

Yeah.

Hmm.

[music].

Yeah.

[music].

Yeah.

[music].

<unk>.

[music].

<unk>.

Hmm.

[music].

Yeah.

<unk>.

Yeah.

[music].

Yeah.

[music].

Yeah.

[music].

Mm.

[music].

Yeah.

[music].

Yeah.

Okay.

And.

[music].

Yeah.

[music].

ACH.

Yeah.

Okay.

Yeah.

[music].

Okay.

Yeah.

Okay.

[music].

Mhm.

[music].

Yeah.

Okay.

Yeah.

[music].

Hmm.

[music].

Yeah.

[music].

Yeah.

[music].

Yeah.

Okay.

Yeah.

Okay.

Yeah.

Okay.

[music].

<unk>.

[music].

Yeah.

[music].

Huh.

[music].

Hmm.

[music].

Yeah.

[music].

Yeah.

[music].

Yeah.

[music].

Ooh.

[music].

Hmm.

[music].

Huh.

[music].

Q1 2020 Earnings Call

Request a DemoDemo

BTE

Baytex

Earnings