Q2 2022 Baytex Energy Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Paychex Energy Corp, second quarter, 2022 financial and operating results Conference call.
As a reminder, all participants are in listen only mode on the conference is being recorded.
After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star zero.
I would now like to turn the conference over to Brian Ector, Vice President capital markets. Please go ahead.
Thank you Staci and good morning, ladies and gentlemen, and thank you for joining us to discuss our second quarter 2000 2022.
But actual and operating results today I'm joined by Ed <unk>, President and Chief Executive Officer, Rod Gray Executive VP, and Chief Financial Officer, and Chad Lundberg, our chief operating and sustainability 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, all dollar amounts referenced in our remarks are in Canadian dollars, unless otherwise specified and with that I would now like to turn the call over to Ed great. Thanks, Brian and good morning, everyone I'd like to welcome everybody to our second quarter 2022.
<unk> call as everyone is aware yesterday, we announced that I will be retiring in January of 2023.
Save my comments on our retirement to the yen because I really want to focus on the business at hand, and the momentum we continue to build both operationally and from a shareholder return perspective, it's business as usual and we have an exciting story unfolding during the second quarter, we remain focused on capital discipline generating free cash flow.
And reducing debt, we delivered strong operating and financial results with production of over 83000 Boe per day record quarterly free cash flow of $245 million and a further 12% reduction in our net debt to $1 1 billion.
We continue to execute our 2022 plan with production guidance unchanged at 83000 to 85000 Boe's per day, and we expect to exit 2022, producing approximately 87000.
288000 Boe per day.
Our 2022 exploration and development expenditure guidance is unchanged at $450 to $500 million.
Like everyone in the industry, we continue to experience inflationary pressures in our business and in our case, particularly in the Eagle Ford.
As a result, we anticipate full year capital expenditures will be towards the high end of our guidance range.
We are also fine tuned several of our cost assumptions to reflect increased royalties due to higher commodity prices and further inflationary pressures on operating and transportation expenses related to labor fuel electricity and hauling.
This should come as no surprise, but as an organization, we remain intensely focused on capital discipline and maximizing free cash flow.
Based on the forward strip, we expect to generate approximately $700 million.
Or one to $5 per basic share of free cash flow this year.
What is most exciting is that our improved financial position has enabled us to implement the first phase of our enhanced shareholder return framework.
We are now allocating 25% of our annual free cash flow to a share buyback program. During the second quarter, we repurchased $9 1 million common shares representing one 6% of our outstanding shares at an average price of $6 88 per share and we have remained active.
Here in July .
The remainder of our free cash flow continues to be allocated to debt reduction.
As our deleveraging continues at a rapid pace. We are pleased to announce the second phase of our shareholder return framework upon achieving a net debt level of $800 million in late 2022 or early 2023, we anticipate increasing direct shareholder returns to 50% of our free cash flow.
And accelerating our share buyback program we.
We continue to view our shares as undervalued in relation to our current operations.
We have also established an ultimate net debt target for the company of $400 million, which represents an expected net debt to EBITDA ratio of one times at a $45 USW Ti price.
We feel this level of net debt will provide us with full flexibility to run our business through the commodity price cycles and generate meaningful returns to our shareholders.
At current prices, we expect to achieve this net debt level by the end of 2023 early 2024 at which point, we will consider steps to further enhance shareholder returns.
Operationally the highlight of our business continues to be our Clearwater development at P volume.
This is an asset that at current commodity prices generates amongst the strongest economics within our portfolio with payouts of less than three months and has the ability to grow organically, while enhancing our free cash flow profile during the second quarter. Our Clearwater production averaged 7300 barrels per day up from 32.
<unk> hundred barrels per day in Q1.
Production during the second quarter was curtailed by approximately 650 barrels per day due to spring breakup and road maintenance that took the $4 25 pad offline for two weeks in May production in June averaged 9100 barrels per day from our 18 producing wells in Q2.
The remaining four wells from our 10, well first quarter drilling program were brought on stream.
The 10 wells have now established at.
That average 30 day initial production rate of 772 barrels per day per well.
And four wells generated 30 day Ips of over 1000 barrels per day per well.
Initial well performance continues to outperform type curve assumptions and we now hold nine of the top 10 initial rate wells drilled to date across the play to date, we have Derisked 50 sections of land of our 80 section <unk> land base and believe the lands hold the potential for more than 200 locations.
When combined with our legacy acreage position in northwest, Alberta, we estimate that over 125 sections of our lands are highly prospective for Clearwater development.
Our second half drilling program kicked off in July and we expect to drill 14, additional Clearwater wells, including 13 wells at <unk> and one well at seal that follows up a successful exploration well from 2021. The first two wells from the second half drilling program are scheduled to be on stream by mid August .
Maintaining a consistent one rig program and level loading activity in the second half of 2022 will drive further efficiencies and set the stage for continued strong operating momentum heading into 2023.
While we are confident that Clearwater production will increase to approximately 10000 barrels per day during the five year plan. We believe the play ultimately holds the potential for over 200 drilling locations that could support production increasing to over 15000 barrels per day.
Our current five year cumulative free cash flow forecast for the asset is $400 million.
With a strong outlook for 2022 unfolding I want to now turn the call over to Rod who will provide a brief update on our liquidity and capital structure.
Thanks, Ed and good morning, everyone, our liquidity and capital structure have never been stronger and with the established that target. We now have in place. We are building a business that will be resilient throughout the commodity price cycles.
As we previously disclosed we received received strong support from our lending syndicate early in Q2 to extend and amend our bank credit facilities.
Our revolving credit facilities were extended by two years from April 2024th to April 2026, and have been increased to USD 815 $850 million.
The revolving credit facilities are not borrowing based facilities and do not require annual or semiannual reviews on June 1st we redeemed the remaining U S $200 million principal amount of the 565% long term notes due 2024 at par following this our net debt which include.
Our credit facility long term notes and working capital totaled $1 1 billion at June 32022 down from $1 4 billion at December 31 2021.
Our only remaining long term note outstanding at quarter end was our U S $500 million principal amount, 875% notes due 2027 as Ed mentioned, we anticipate hitting our $800 million debt target late in 'twenty, two or early in 2023, the timing of when we reach this debt level a little.
Largely be dependent on oil prices for the remainder of the year as of June 32022, we had $582 million of Undrawn capacity on our credit facility, resulting in liquidity net of working capital of approximately $600 million.
And with that I'll turn the call back over to Ed. Thanks, Rod, we're incredibly excited to be in this position today.
I also want to highlight our 2021 ESG report and our inaugural Tcf D report both were published yesterday and are available on our website. Since 2012, we have proudly reported on our activities to reduce our environmental impacts promote the safety and well being of employees contractors and communities and.
Insurer effective governance, we remain focused on key ESG initiatives, including ghd emissions reductions abandonment and reclamation strong and mutually beneficial indigenous community relations safety and climate risk management, our focus on ESG is essential to drive sustainable outcomes and.
Long term viability alongside shareholder returns.
I would encourage everyone to read through the reports as they contain a tremendous amount of information and give great insights into the <unk> team and our culture something I am immensely proud of.
I'll close with just a brief comment on my retirement.
I have provided the board with notice of my intention to retire in January of 2023. This is not a surprise to the board and to help facilitate this process. The board has established a succession committee and engaged an executive search firm to identify and evaluate both internal and external candidates for the role.
I plan to work with the board to ensure a smooth transition as we continue to build operational momentum and drive shareholder returns I am pleased that <unk> is extremely well positioned for the future and at the same time I am ready to move to the next stage of my career.
Our business is strong and we look forward to executing our plans for the ongoing benefit of all stakeholders and with that I will ask the operator to please open the call for questions.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear return acknowledging your request.
If youre using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
We will pause for a moment as callers join the queue.
Okay.
There are currently no questioners I'll turn the call back over to Brian Ector for any closing remarks.
Alright, Thanks, Betsy I think today were we happened to pick a time, where there is a number of competing conference calls for the investment community. So we certainly do appreciate it.
Everyone's interest, though I do see we do have a call on the line now so we'll take that call.
Sounds good.
We have a question from Josh Young from Bison. Please go ahead.
Great. Thanks, Thanks, guys.
I was just a little late to hit the number pad there.
So I guess with advertising, which by the way I think you did a great job.
And steward the company through a really difficult times and obviously the results are apparent to everyone.
I guess my question is.
With Ed.
Leaving does it makes sense for the company to be doing some more sort of bigger review of alternatives, maybe either putting the eagle Ford up for sale just to see sort of if there is some accretive transaction do there potentially put the company.
Again like with with excellent leadership, leaving.
Leaving.
A team to try to find someone else versus sort of reviewing maybe the business holistically. It seems like it's at least worth considering and I thought I'd ask.
Well, thanks, Josh for the compliment.
Question I'm not going anywhere until January 2023, so that takes us through the strategy review with the board. It takes us through the 2023 planned cycle and then we announced the plan to market in December and.
All I can say about that is the board is is extremely complementary and also supportive of our plan as we outlined today, which includes the assets that we have in our portfolio generating the free cash flows the deleveraging the shareholder returns that are in our portfolio.
Anything.
In the future is.
Fairways off we want to stay with the momentum we have and continue to build on that so that's all I would say on that Josh we're not looking at any any big.
And right now we don't need to we have got our hands full with the organic development in front of us.
Okay that makes sense and then as a follow up I think I've asked this before on prior calls.
Rock prices up I think since then.
And that was one of the indicators split potentially renewing.
Sort of a major exchange listing and I'm interested in your guys' thoughts on that to the extent that there's a change.
Yes, we have no plans right now too.
Try to regain our listing.
We're in a good place now we're getting a lot of liquidity, we're seeing a lot of liquidity on the <unk> and other exchanges in Canada, we're seeing a lot of people buying our shares from the U S. As well. So there are no plans to reinstate the NYSE listing at this point in time, but we reevaluate that.
Every year or so.
Great. Thank you.
There are no further questions at this time.
Alright. Thanks.
Thanks, <unk> and thanks, everyone for participating in our second quarter 2022 conference call have 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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