Q2 2021 Baytex Energy Corp Earnings Call

Representing approximately 25% of our outstanding long term notes due in 2024.

At current commodity prices, we now expect to deliver over $350 million of free cash flow this year or <unk> 62 per basic share, which will accelerate our debt reduction efforts.

During the second quarter, we delivered adjusted funds flow of $176 million or <unk> 31 per basic share.

This resulted in substantial free cash flow of $112 million on the quarter, which along with Canadian dollar strengthening relative to the U S. Dollar contributed to a 100.

Third $29 million reduction in our net debt we.

We realized an operating netback of $34 per BOE, which is up from $30 per Boe realized in the first quarter.

Production during the second quarter averaged 81200 Boe per day, 81% of oil and.

<unk> up 3% as compared to 79000 Boe per day in Q1.2021.

The increased production reflects the timing of completion activity in the Eagle Ford and the strong performance across our light and heavy oil assets in Canada exploration.

The exploration and development expenditures totaled 60.

The $1 million and included the drilling of $19.7 net wells with a 100% success rate.

As a result of our strong performance through the first half of 2021, we are increasing our production guidance to 79.

280000 Boe's per day.

Up from 77000 of 79000 BOE per day previously at.

At the midpoint. This represents a 2% increase there is no change to our capital guidance, we continue to forecast the exploration development expenditures of $285 million to $315 million.

For 2021.

Last quarter, we highlight of the strategic agreement, we executed in 2020 with the <unk> Metis settlement that covers 60 sections of land directly to the south of our existing steel operations.

At the time, we identified significant potential for this exploration play.

In the Spirit River formation of Clearwater formation equivalent.

Adding the 60 sections to our existing seal acreage, we estimate over 100 sections of our lands are perspective for Clearwater development.

As you will recall, our initial exploration well drilled on the P volume lands.

During the first quarter delivered a 30 day initial production rate of 175 barrels per day from only 2 laterals.

We have now followed up our initial success with 4 additional wells the.

The first of these follow up appraisal wells as another 2 lateral well with a lower cost drilling mud.

Targeting this well has also demonstrated a 30 day initial production rate of 175 barrels per day.

We have also drilled to a lateral wells, which are showing promising early results of.

These 2 wells were brought on stream during the month of July. So we are not yet in a position to report 30 day initial.

Production rates were.

We are currently drilling the fourth follow up well, which is also on 8 lateral appraisal well located 3 miles to the east.

In total we plan to drill up to 7 net appraisal wells in 2021 across our Clearwater acreage with 5 of these wells on RP volume lands.

I am very excited to say that our appraisal program continues to yield encouraging results and pending continued success sets the stage for an increased activity program in 2022.

We also introduced our 5 year outlook last quarter, which is grounded on a $55 of WTO.

Hi.

Price in our Investor Relations materials, we have updated year, 1 of our 5 year outlook in other words 2021 to reflect year to date commodity prices and the forward strip for the balance of this year. The remaining years 2022 to 2025 continue to be based on.

On a constant U S $55 of WTO price.

Under the plan, we expect to generate over $1 billion of cumulative free cash flow as we target capital expenditures at less than 70% of our adjusted funds flow, while optimizing production in the 80 to 85000 Boe per.

Per day range.

Based on the strong pricing environment and free cash flow forecast for 2021, we have accelerated our debt repayment strategy by approximately 1 year over the base plan presented last quarter.

And for those with the more bullish outlook on oil.

<unk> provides.

Couple of sensitivities under constant U S $60, a barrel and U S $65, a barrel of <unk> pricing scenarios, we expect to generate in excess of $1.5 billion and $2 billion of cumulative free cash flow respectively over the planned period.

Provided in the context of our current $1.2 billion market capitalizing capitalization. This is pretty extraordinary I will now turn the call over to rod to discuss our balance sheet and risk management.

Thanks, Ed and good morning, everyone as Ed mentioned, we have taken proactive measures to reduce our debt levels on mainline.

Fourth we repurchased and canceled the U S $5.8 million principal amount of $5, 65% of long term notes and subsequent to the quarter. We used free cash flow generated in the first half of 2021 to repurchase and cancel an additional use of $100 million principal amount of the 5.6 to.

The 5% long term notes.

At the coal price of approximately 101 plus accrued interest.

These measures demonstrate our commitment to reduce our leverage and drive our cost structure lower following these repurchases. We continued to maintain an excess of $400 million of liquidity.

As.

As of June 30, our net debt totaled $1.63 billion down from $1.76 billion on March 31, 2021, we're currently targeting of net net debt of 1% to $1.2 billion, which under our base plan at $55 U S. W. Ti we will reach by the end of 2000.

23.

At higher commodity prices the timeframe to achieve our debt targets will be accelerated now.

Now turning to our risk management.

We maintain a consistent approach to risk management and marketing utilizing various financial derivative contracts and crude by rail to reduce the volatility in.

So the funds flow for the remainder of 2021, we have entered into hedges on approximately 45% of our net crude oil exposure largely using utilizing a 3 way auction structure that provides the WTO price protection at U S $45 per barrel with upside participation.

Our adjusted U S $52 per barrel.

For 2022, we have entered into hedges on approximately 42% of our net crude oil exposure utilizing a combination of swaption at U S $53.50 per barrel and a 3 way option structure that provides price protection at U S 58.

<unk> per barrel with upside participation to approximately USD $67.50 per barrel.

For 2021 and 2022, we have also entered hedges on.

On our Canadian light and heavy oil differential exposure full details of our hedge program can be found in our Q.

Q2 financial statements and are available on our website and with that I'll turn the call back debt. Thanks, Rob.

I would like to also highlight our just released 2020 environment social and governance report. This is our fifth biannual report and demonstrates our commitment to transparency and accountability and our progress.

Dollar of energy and the environment and social impacts of our business.

I'm also pleased to announce the appointment of Chad Lundberg as chief operating and sustainability officer, Chad will retain his existing responsibilities as head of the light oil business and we will spend more time explicitly linking our sustainability priorities and efforts.

Efforts to our capital allocation of strategic planning processes.

We know that our ESG efforts of our essential to our long term viability and relevance as we plan for the future we have set the bar higher by setting new goals.

Having surpassed our first GHT reduction target we want to further.

And may organize our operations and we have committed to reduce our <unk> intensity by 65% from our 2018 baseline. Additionally to reduce the environmental footprint of our operations. We have set of bold new target to reduce our inactive well count of 4500 wells to zero by.

The 2040.

And we're also evaluating and testing methods to reduce our freshwater intensity or.

Our ESG report is available on our website and I would encourage all investors to review of the report and reach out if you have any questions.

And with that I will close with this key message our business.

Is strong and we have a robust plan in place to deliver meaningful free cash flow. We will continue to monitor our leverage position and assess market conditions to determine the best methods or combination thereof to enhance shareholder returns. These could include share buybacks or dividend <unk> reinvesting.

Again, the growth we're off to a great start in 2021, and we look forward to continuing to communicate with you as we execute on our plans for value creation and with that I will ask the operator to please open the call for questions.

Certainly we will now begin the question and answer session to join the question queue. You May Press Star then.

4 on your telephone keypad.

The tone acknowledging your request.

If youre using a speakerphone, please pick up your handset before pressing and Keith.

To withdraw your question. Please press Star then true.

Our first call it is true.

<unk> with 8 capital.

<unk> go ahead.

Yeah good morning.

Just on questions on the the Clearwater.

I know, it's only 2 wells, but.

In terms of the 2.2 laterals, you're getting better results and maybe we're seeing what you're seeing with some of your peers in other parts of the clear.

Sure.

Is that repeatable do you think going on what do you think is kind of differentiating where you are on the Clearwater versus maybe where others are.

Yes, very good question, we've had a lot of interest in what we're doing in the Clearwater and let me take a step back before I answer the question Phil The first thing I would say is we've been evaluating.

<unk>. This play for a couple of years and we landed the deal with the P. By Metis settlement of year ago on a year on a quarter ago.

And also I want to give a big shout out or.

Support to the <unk> settlement, who is doing a great job integrating with us on working with us to do what.

Watering up there we are of multilateral exploration and development company everybody knows that we run this probably as well or better than anyone.

So we are actually drilling of our fifth well right now in the Pea volume settlement and it's further to the east.

All results.

We're doing all of our I would say are generally confirming the mapping the geology and the reservoir that the team had anticipated through the course of the last couple of years. So it's just.

This is not the big surprise to US we are pleasantly surprised I think with some of the results but in.

General we're confirming expectations.

So we announced the 175 barrel a day.

2 lateral discovery well in Q1, we're now saying we've got a second drilled on the water base of cheaper.

Less expense of water based mud system at the same level.

<unk> of 175 barrels per day, we've got to a lag multi laterals that you can see in the press release, which you are referring to I think Phil that.

On that were brought online in July.

On the 1 that was brought on July 10 had about 10 days of oil based mud flow.

And is now in its roughly its 10th day of initial production.

And I can tell you right now it's very early.

We don't know for sure what the IP 30 will be but our 10 day early initial results are greater than 500 barrels a day.

So that's kind of where.

Flow back it will be variable across this reservoir like all of these things are on cold flow and it will depend on where we are the second 8 legere is still producing back the drilling mud and we don't have any early results on that to report.

But all is going according to plan.

And we're sitting.

Now drilling in the third or fourth leg of the.

The next 8 leg well out to the east and that's another important test. So these are all important tests. It's just a step on the process of us appraising and developing these labs, but we're very encouraged we're very excited Phil.

And hopefully that as I've said on.

<unk> that would lead to increased activity next year, but let's see where we get.

Around September timing.

Yes for sure and you just you mentioned that the east 1 is on.

Another important tests on what exactly are you testing the expectancy out there.

Well we.

The script, we knew we were drilling this first well down dip the discovery well as down dip.

Has further risks associated with us and Thats. The 1 we got a 175 barrels a day, we're on that path now with 4 producing most of the fifth wells that set of 3 miles to the east So what we believe happens.

Out there is that the structure moves up dip.

And we're seeing that from the laterals, we're drilling off of the discovery pad the <unk>.

Extend to the east so it is confirming our view of structure as we move up structure Theres a potential for lighter oil.

And as you see lighter.

Oil is mobility is improved.

So it's a little bit closer to the settlement and we were managing debt with the logistics of our trucks and rigs and the supply equipment, but everything is going well so far but that's really what we're testing is further acreage to the east.

Up structure.

And hopefully some lighter fluids, but we will see.

Okay, great. Thank you.

The next question is from Jerry Mcmahon from Jeremy in the case from Raymond James. Please go ahead.

Go ahead.

This is a bit of a follow up from sales question. There too like what are you guys wanting to see from the Clearwater before you really start putting some more capital into the play and just directing capital from other areas and where does where do you see the Clearwater play going into over the next 2 to 3.

4.

The 5 years here like how does this play interact with your 5 year plan here just given these initial results at 500 barrels a day here for the first 10 day Sir.

Well, we've got about 100 sections of prospective land on the Clearwater and about 60 of that is in the P volume as I said, so 40 sections to the north.

In our seal main and beyond area.

So.

That's kind of the scope of of the play if we've got 4 wells per section that's quite a lot of inventory. So what I would do is risk weight debt, which we've done 50 sections work of 4 wells a section that's couple of hundred wells.

If we've got on 1 rig year, we can drill 18 to 20 wells per year. So that's about a 10 year inventory of prospect inventory. So.

The beauty of this is that if its what we think it is.

Benchmarks to similar areas, we believe the.

Growth within its own cash flow and that's the beauty of the Clearwater that very few other places can do it if it does then it doesn't put a burden on the corporation as we go into development mode. The economics are very strong there of 100% to 200% returns less of the year paybacks of 2 to 3 times recycle ratios. So.

So at our base.

Our IP expectation was about 300 barrels a day.

IP 30.

And the 150 to 170000 barrel EUR as we would expect to generate those economic results and to growth. So what could it mean I think I've kind of subtly alluded to.

It would be very straightforward to if we have success on this program.

End of September we will know the answer to that I could see us very clearly going to of rig year program.

And that 18 to 20, well level for next year, but we've got to make those calls in the fall as we set up for 2022 budget.

Move on from there.

We're thinking about the quite hard.

Okay got it.

Perfect. Thanks.

This concludes the question and answer session I would like to turn the conference back over to Brian Ector for any closing remarks.

Alright. Thanks.

Scalene, thanks, everyone for participating in our second quarter conference call of a great day.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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