Q3 2024 Baytex Energy Corp Earnings Call
Alright guidance.
Speaker Change: Good day, everyone. Thank you for standing by this is the conference operator.
Speaker Change: Welcome to the Bay Techs Energy Corp, third quarter, 2024 financial and operating results conference call.
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Speaker Change: I would now like to turn the floor over to Brian Ector, Senior Vice President capital markets and Investor Relations. Please go ahead.
Brian Ector: Thank you Jamie good morning, ladies and gentlemen, and thank you for joining us to discuss our third quarter 2024 financial and operating results.
Brian Ector: Today, I am joined by Eric <unk>, Our President and Chief Executive Officer, Chad <unk>, our Chief Financial Officer.
Brian Ector: Lundberg, our Chief operating officer, who is joining us today from our Houston office.
Brian Ector: While listening please keep in mind that some of our remarks will contain forward looking statements within the meaning of applicable securities laws.
Brian Ector: For you to the advisories regarding forward looking statements oil and gas information and non-GAAP financial and capital management measures.
Brian Ector: Yesterday's press release.
Brian Ector: All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified.
Brian Ector: Following our prepared remarks remarks, we will be taking questions from the analysts. In addition, if you are listening in today via the webcast you will have the opportunity to submit it all one question.
Permitting we will strive to answer your questions.
Speaker Change: I would now like to turn the call over to Eric.
Eric: Thanks, Brian Good morning, everyone and welcome to our third quarter 2024 conference call.
Eric: We're pleased with our third quarter results, which demonstrate continued solid operational performance as well as our commitment to generating meaningful free cash flow and the delivery of strong shareholder returns.
Eric: During the third quarter, we generated $220 million of free cash flow returned $101 million to shareholders through the share buyback program and quarterly dividend and reduced net debt by 5%.
Eric: Over the last five quarters, we've returned almost $500 million to shareholders.
We have bought back 75 million common shares for $387 million representing.
Eric: Representing approximately 9% of our shares outstanding and paid total dividends of $92 million. We have also reduced our net debt by 12% over the last four quarters.
Eric: We increased production per share by 10% in Q3 2024 compared to Q3 2023 with production averaging more than 154000 Boe per day.
Eric: 86% oil and Ngls.
Eric: Our crude oil production comprised of light oil condensate and heavy oil increased 2% from Q3 'twenty three to average over 112000 barrels per day.
I'd like to turn the call over to Chad <unk> to discuss our financial results.
Chad: Thanks, Eric we remain committed to a disciplined returns based capital allocation philosophy to drive increased per share returns Eric.
Chad: Eric touched on our free cash flow and shareholder returns as a reminder, under our balance shareholder return framework, we allocate approximately 50% of free cash flow to the balance sheet and 50% to shareholder returns, which includes our share buybacks and our quarterly dividend.
Chad: In Q3, adjusted funds flow was $538 million or <unk> 68 per share and we generated net income of $185 million or 23, 20 <unk> per share.
Chad: In addition to the operationally strong quarter, which delivered excellent financial results. We benefited from approximately $22 million of one time items, including insurance claim proceeds related to the 2023, Alberta wildfires and adjustments with respect to previously paid royalties.
Chad: Continuing to reduce debt remains a priority and we made significant progress during the quarter.
Chad: Our net debt at September 30 was $2 5 billion down 5% from June 30 of 2024, our total debt, which excludes working capital at September 32024 was $2 3 billion and we maintained our leverage ratio with a total debt to EBITDA at one <unk> times based on a trailing 12 months EBITDA.
Chad: We've updated our 2024 expense guidance, which reflects year to date results and our expectations for the fourth quarter, notably we are guiding to lower royalty rates lower royalty rates.
Chad: Lower G&A and lower current income taxes, all of which impact our always positively impact our adjusted funds flow and free cash flow for the year.
Chad: Operating and transportation expenses are trending in line with full year guidance now.
Speaker Change: Now I will turn the call over to Chad Lundberg to discuss our operating results.
Chad Lundberg: Well, thanks, Chad, we had a successful quarter and I want to spend some time, highlighting our Q3 operations.
Chad Lundberg: In the Eagle Ford production averaged approximately 90000 Boe per day, 82% oil and Ngls up from 87000 BOE per day in Q3 2023.
Chad Lundberg: During the third quarter, we brought on stream 17 operated wells.
Our development program is largely focused on the black and volatile oil windows of our acreage, where we typically generate 30 day peak crude oil rates of 700 to 800 barrels per day or 902, 1100 Boe per day with average lateral lengths of 9200.
Chad Lundberg: 9500 feet.
Chad Lundberg: Based on well placement in Q3 lateral lengths were down slightly with overall results trending in line on a length normalized basis.
Chad Lundberg: Due to efficient drilling and completion activities year to date, we have realized an 8% improvement in operated drilling and completion costs per completed lateral foot over 2023.
Chad Lundberg: In our Canadian light oil business unit, we have made substantial strides in advancing our understanding of the perm in the duvernay with production, averaging 7600 Boe per day, 83% oil and Ngls up from 4800 Boe per day, a year ago.
Chad Lundberg: Last quarter, we highlighted our first pad three wells that delivered strong production results. Our second pad four well was brought on stream in August and it too has resulted in strong production with three of the four wells generating average 30 day peak rates.
Chad Lundberg: 842 barrels per day of crude oil and 11 125 Boe per day per well.
Chad Lundberg: Based on public data three of these four wells ranked in the top 15 for new oil wells in the province of Alberta for the month of September.
Chad Lundberg: The <unk> Duvernay is in its demonstration stage of development.
Speaker Change: This year the team made some notable enhancements to the program and I'm excited by the results.
Speaker Change: Through a combination of drilling completion and facility design optimization, our average 30 day peak production rates improved by 40% as compared to 2023, well results with only a 4% increase in lateral length.
Speaker Change: The balance of our portfolio continues to perform well, including our Viking light oil and heavy oil business.
Speaker Change: <unk> continued to outperform expectations we.
Speaker Change: We had a successful blue sky exploration well on a recently acquired 66 section land block in Peace River, and we continued our development across the broader Manville group in Lloyd Minister, including progressing our Recife development.
Speaker Change: With that I will turn the call back to Eric for his closing remarks.
Okay.
Eric: Thanks, Chad.
We're pleased with the strength of our Q3 operating and financial results our commitment to shareholder returns and a notable reduction in our debt.
Eric: We anticipate full year 2020 for production of approximately 153000 Boe per day with exploration and development expenditures of approximately 1.25 billion, both trending to the midpoint of our original guidance.
Eric: For 2025, we expect to release our budget in early December.
Want to reiterate our commitment to prioritizing free cash flow.
Eric: And then the current commodity price environment. This means moderating our growth profile and delivering stable level as crude oil production.
Eric: We are well capitalized and remain focused on disciplined capital allocation and now Jamie we are ready to open the call for questions.
Okay.
Speaker Change: Ladies and gentlemen at this time, we will begin the question and answer session to join the question queue. Once again, you May Press Star and then one you will hear a tone acknowledging your request.
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Speaker Change: We'll pause a moment as callers join the question queue.
Speaker Change: Our first question today comes from Greg Pardy from RBC capital markets. Please go ahead with your question.
Speaker Change: Great. Thanks, Justin how on the line for Gregg Party. Thanks, very much for taking my question. So really just one question for me just wondering if you could frame out your drilling plans and expectations for your Duvernay asset maybe through the balance of this year and into next year, obviously cognizant that you're you're still working through the budgeting process.
Yeah. Good morning, Justin Thanks for the question.
Speaker Change: We are.
Speaker Change: Continuing this demonstration stage in the next year.
Speaker Change: And we've been very systematic in our framework next year.
Speaker Change: Provided continued.
Speaker Change: Performance improvements and success, which we fully expect.
Speaker Change: We intend to budget of 7% to nine well program so that could be.
Speaker Change: <unk>, well and a four well two four wells or three three wells, but somewhere in that range.
Speaker Change: And that will continue to help us demonstrate not only.
Speaker Change: Stimulation design improvements spacing optimization and drive continued performance improvement as we as we continue to both gathering data.
To inform our models and our statistics, but also continued to improve.
Speaker Change: Those energy delivery systems into the end of the reservoir so.
Speaker Change: Then kind of seven to nine for 2025.
Speaker Change: And.
Speaker Change: Again on continued progress we would likely moves we would likely start ramping up toward.
Speaker Change: Full development.
Speaker Change: In 2026 and that could be nine to 12.
Speaker Change: It's 27 could be 12 to 15, while we'd like to do is continue to push that ramp forward.
Speaker Change: A lot of this is price dependent of course, as we mentioned in our moderating growth comment, but the bottom line is we expect this play to deliver very strong economics, very strong capital efficiencies and we want to get it to.
Speaker Change: The kind of one rig level is pace of development.
Speaker Change: That will keep a frac crew working pretty much round the calendar, but for the coldest periods of the winter and we think that will allow us to really extract operational efficiencies out of out of our acreage. Let me just stop there Jos can and see if you've got a follow up.
Speaker Change: No that's perfect all right. Thanks, very much that was the only question I had so I appreciate it.
Speaker Change: Thank you.
Speaker Change: And once again, if you would like to ask a question. Please press star and then one.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: And we do have an additional question. This is from Amir <unk> from <unk> capital. Please go ahead with your question.
Speaker Change: Hi, good morning, guys.
Amir: Just wanted to get a little bit more color on that on that peace River.
Amir: Oh, Please guy well could you just give us a little more color on where you cut the 66 sections of land was that just crown lands or was it through an acquisition and.
Amir: And just the initial rates in.
Amir: Color on that first of all.
Speaker Change: Yeah, good morning Amir.
Speaker Change: So <unk>.
Speaker Change: Actually in our investor deck, you'll see a map toward the back in the asset area Youll see kind of a blocky green polygon and our peace River Slide I'm, just thinking in my Mind's eye here, because I don't have it in front of me.
Speaker Change: But it's kind of in the 10 or 11 o'clock position, a big Green block.
Speaker Change: It's about 66 net sections.
Speaker Change: It's a fairly large physical block.
Speaker Change: It was a private farm in and so we saw prospectively.
Based on our experience in the Blue Sky and we've drilled two development wells well I'd call them explore exploratory at this point.
Speaker Change: And we've had success in terms of what we have seen in the performance of a lateral so we.
We feel pretty good about this.
Speaker Change: Went out which I havent been shy about in four years, we've made four discoveries in our heavy oil business, starting with <unk> and the clear water. This is the fourth in four years.
Speaker Change: And in what I would say.
Speaker Change: Notionally three or four different horizons in different parts of heavy oil. So it's the gift that keeps on giving and considering the large position we got about 600000 net acres.
Speaker Change: We expect to continue this.
Speaker Change: Successful effort around the acreage and just continuing to replace inventory in production with new reserves and new discoveries, but that's that's it on the on the Peace River Blue Sky, we sometimes call it west Cadotte.
Speaker Change: Because it's in that general area, but youll see it on the.
Speaker Change: Peace River map in our deck.
Speaker Change: No that's good I appreciate it thanks.
Speaker Change: Thanks Amir.
Speaker Change: And ladies and gentlemen, with that we'll be concluding the audio question and answer session I'd like to turn the floor back over to Brian Ector for any questions received online.
Brian Ector: Okay. Thanks, Jamie Yes, we do have a couple of questions coming at all point to the webcast. So thank you for that.
Brian Ector: Eric The first question comes back to the shareholder return framework.
Brian Ector: Jeff spoke to we bet on being balanced and just a question around the use of excess cash in preference to reducing debt or buying back shares.
Yes, so Bryan Thank you and thanks for the question through the portal.
Speaker Change: We really do like the balanced framework.
Speaker Change: Till we get down to the $1 5 billion absolute level.
Speaker Change: And I would point out that the share buybacks in the last five quarters, we have purchased a repurchased 75 million shares which was mentioned in our earlier prepared remarks.
Speaker Change: And that represents 25% of the shares issued for the Ranger transactions. So in five quarters, we purchased repurchased.
Speaker Change: 95% of the share issuance we're.
We're proud of that and we think this balanced framework between debt reduction.
Speaker Change: Modest fixed base dividend and share repurchases is a good one and we intend to stick with it.
Okay. Thanks, Eric a question around the depth of the inventory across our portfolio. We spoken to 10 to 12 years, but maybe can you just elaborate a little bit how that makes sense.
Five year planning and even beyond the five year planning purposes, Eric you bet. So so we do a full depletion plan every year, we take every asset all the way out to the end of its life last acre last well last barrel of recoverable reserves.
Speaker Change: But obviously, we don't publish all of that information its for internal planning.
Speaker Change: Purposes.
Speaker Change: We feel really good about this 10 to 12 year inventory and we feel like we can continue to deliver high quality results.
Speaker Change: Over one year three year, five year, and 10 year horizons with the inventory we've got.
Speaker Change: We're pretty balanced at that 10 to 12 years across most of our positions.
Speaker Change: Whether that's the Eagle Ford operated or non op or our Viking or our heavy oil is a variety of heavy oil positions, we have but I will point out that in particular, the duvernay not only.
Speaker Change: Have we really made progress in the last couple of years.
Speaker Change: Through the new stimulation design frameworks, and statistics and machine learning tools.
Speaker Change: But it also represents.
Speaker Change: Something like 25 years at the current pace of development and that's a lot of value dropped out in time and this is the primary reason not only the performance and the quality.
Speaker Change: But its proximity to market and the fact that by pulling it forward, we can create a lot of shareholder value.
Speaker Change: And again strong economic strong capital efficiencies and we'd like to pull that long inventory forward in time to line up better with the balance of our portfolio and these things as long as I'm talking about portfolio, Brian I just want to mention these things work in a complementary fashion, so our eagle Ford with the strong realized price.
Speaker Change: <unk> Gulf Coast markets.
Speaker Change: That generates.
Speaker Change: Cash engine, the cash flow engine for the balance of our portfolio and to fuel not only the excess cash flow that we're able to buy back shares and pay down debt with but also capitalizing the duvernay program. In this next leg of our strategic growth and so as one as we pulled one.
Speaker Change: <unk> forward and create value through the duvernay organically.
Speaker Change: We're able to fund that organically through our Gulf Coast operations, and then alongside that we have this really powerful stabilize or running at 40% to 45000 barrels a day continuing to replace its own <unk>.
Speaker Change: Inventory and barrel production and maintained kind of strong heavy oil performance and economics and so.
Brian Ector: It's a pretty interesting portfolio balance for a company our size. Let me just stop there Brian will take the next question sure. So a couple questions have come in or under our hedging strategy can you maybe just elaborate on what to recur hedging strategy looks like Eric.
<unk>.
Brian Ector: Could you provide an update on where Q4 and 2025 as well I'm going to pitch. This one over to Kal macaques, Chad take it away.
Speaker Change: Our hedging strategy really hasn't changed we're fairly focused on the crude oil hedging and I think we like to think about it as more of an insurance policy then.
Speaker Change: And then you've really certainty of cash flow so.
Speaker Change: But we look to do is purchased.
Speaker Change: Put floor all the oil volumes. So we would look for a $60 Florida.
Speaker Change: Works nicely into to the asset level, so at $60, Florida, that's kind of getting closer to cash flow breakeven or kind of where the the marginal assets.
Yeah.
Speaker Change: Rates return around 15%. So we bought this put floor around $60 and really we saw calls for funding that put floor kind of as high as we can so historically through 2024, we've kind of been close to 60 by kind of in the mid nineties.
Speaker Change: We are now hedged into 2025.
Speaker Change: The early part of 2025 were 60 by high Eighty's and then.
Speaker Change: Our prior 2005 with these kind of $60 80 color. So on the crude basis were fairly hedged up here for the remainder of 2020 for just over 40%.
Speaker Change: The 2025, we're hedged around the 45% level on the crude oil volumes again kind of at $60 floor by hiring in our calls on the top end of that structure, but.
Speaker Change: And generally speaking I think let me on a total volume hedged we kind of what's the balance sheet. So while we're in this period of kind of one times or or north of one times debt to EBITDA, we look to be kind of be 40% to 50% hedged.
Speaker Change: We reduced our leverage over time will probably reduce the the hedging that we have won with it.
Speaker Change: Okay.
Speaker Change: Favorite gas volumes it is not that impactful to the overall revenue streams that we have most of our gas. We do have is associated associated gas with the oil, but we do have approximately 50% of our over hedged gas exposure next year Nymex on colors structures around 310 towards when we file the contango price structure, just kind of gives you that opportunity.
Speaker Change: For free right.
Speaker Change: Able to go out longer and get higher prices and just protect that gas that will be produced as an associated product I would point to slide 10 in our deck in the event that folks don't don't know where that's at it you can use that as a companion to the comments <unk> just made.
Speaker Change: So I'll stick with you for one more question around.
Speaker Change: The target mix of our credit facilities in the U S dollar terms, yet Canadian credit facilities.
Speaker Change: That target of one $5 billion can you maybe just elaborate on that target mix of what we'd like to see sure sure. Thanks, Bryan So at our current structure, we obviously have more high yield debt outstanding and a total debt target.
Speaker Change: So as we go forward I think we'll have a little bit of a mix of a structure, although I think we'd be heavily weighted to the to the term debt structure that we have in place we do like to turn that.
Speaker Change: It is flexible as the market is deep ideally, we kind of keep tuition issuances outstanding. So over time, we probably will reduce a little bit of a term it'll standing and we may have a little bit on the revolving facilities.
Speaker Change: We tend to have less on the revolver facilities go forward and more to the term debt.
Speaker Change: Two questions operationally for you one in Canada due to the weak gas prices do we have any volume shut in.
Speaker Change: And two in the U S Eagle for re Fracs, what are your thoughts on that.
Speaker Change: Two part question, Yes, Yes, let me take the first part first we really don't have much in the way of.
Speaker Change: Intentional gas production period, and because of that because virtually all of our gas is associated gas with our oil and oil prices have remained.
Speaker Change: Relatively strong compared to gas prices in the markets we sell into.
Speaker Change: We've continued on production and so I think thats, a pretty straightforward answer.
Speaker Change: The low gas prices, whether you're whether you're looking at agco or Nymex theyre really the impact is pretty de minimis to us considering how much of our <unk>.
Speaker Change: Production is dominated by oil price and oil revenues and natural gas liquids.
Speaker Change: And Thats, particularly true when it comes to <unk>, where the prices are let's just say, particularly weak.
Speaker Change: And have been it just has very very little revenue impact on us and on Nymex, We mentioned earlier.
Speaker Change: The opportunity is to put in the simple two way.
Speaker Change: Caller structure to protect that over time.
Speaker Change: On the re fracs.
Speaker Change: We really like the program and the proof of concept with the Medina really put wind in the sales and helped encourage us around just our ability not only to.
Speaker Change: Pick the right wells and pick the right attributes that will lead to success, but successfully execute.
Speaker Change: Never had any doubt, but it helped to put kind of real results behind.
Speaker Change: The concept as a proof of concept.
Speaker Change: It's always going to be a supplement to our primary development.
Speaker Change: Development campaign so.
Speaker Change: Yes, I would just want to caution people don't expect more than say three to six per year and don't expect us to guide openly to when theyre going to happen or or what capital is associated with them.
Speaker Change: We're just going to use those as kind of supplemental that's along the way to take advantage of the opportunity when efficiencies when industrial efficiencies are present themselves.
Speaker Change: Revenue Im going to touch on one more question as we wrap things up here, Eric and this one relates to the overall capital efficiencies of our business can you maybe speak to what you see is our capital efficiencies and second part.
Speaker Change: <unk> to drive further efficiencies in the business and what we're seeing you bet. So this is going to be a two part answer I'm going to try to answer at a higher level and then I want Chad lundberg to come in and maybe add.
Speaker Change: Some commentary around specific examples.
Speaker Change: Examples of things we've had success.
Speaker Change: 2024, I'm going to start at a pretty high level one of the things I'm really excited about with regard to our permanent duvernay.
Speaker Change: As you know.
Speaker Change: This is a this is a highly capital efficient project.
Speaker Change: And getting to our level is one rig pace of development sooner is going to bring those efficiencies forward sooner and as we continue to increase.
Speaker Change: The portion of our total production that is represented by our permanent Duvernay.
Speaker Change: It offsets or replaces.
Speaker Change: Poor capital efficiencies elsewhere in the portfolio and if it turns out we are growing.
Speaker Change: The lion's share of the growth will be represented by by our growth out of our duvernay. So.
If there is any growth in our portfolio, it's going to be coming from our duvernay.
Speaker Change: And those are within our portfolio of top quartile capital efficiencies and across the across the board kind of top quartile top third efficiencies across the whole of North America. They are just really really strong these are million Boe type curves.
Speaker Change: Drilling Notionally 10000 foot laterals, and we can extend those and we have experienced drilling longer laterals and successfully stimulating and bringing the sales longer laterals than that and so.
Speaker Change: So we feel really good about this.
Speaker Change: Pulling this leg of inventory forward and.
Speaker Change: And we have the potential to hold the line or even potentially improve our capital efficiencies over time as the Duvernay takes a larger and larger share of the total production in our in our mix I am very proud of the assets, we've got and the capital efficiencies, but there's always room to get better and we're always looking for opportunities to <unk>.
Speaker Change: <unk> efficiencies and cost out of the system.
With that I'm going to hand, it off Lundberg why don't you take it away with some specifics around examples.
Chad Lundberg: Okay. Thanks.
Chad Lundberg: I would start with the biggest gain.
Chad Lundberg: Gains that we get is on on the capital efficiency side and just from efficiencies in our operations.
Chad Lundberg: That efficiency comes we believe partnering with really really good service companies that would share consistent with common beliefs to ours.
Chad Lundberg: Not only the work front and driving out stronger results, but on the safety side, that's a big pillar of our successes.
Chad Lundberg: Focusing on safety and by doing that we believe kind of all things.
Chad Lundberg: Fallen suit, we also have a very strong cross border interaction where we can.
Chad Lundberg: Really just.
Chad Lundberg: Focus on the different technical programs to meet the technical programs, but most importantly learn from one side of the border to the other.
Chad Lundberg: And so if you think about the headline numbers in the Eagle Ford, where we're talking about an 8% cost reduction. This year. If you think about the duvernay where we've.
Chad Lundberg: <unk> seen a 10% reduction on our drilling costs a lot of those are very consistent whether it's minimizing vibrations on downhole tools. So that we can have extended motor lives.
Chad Lundberg: Or even just the long tenure of our of our drilling rigs.
Chad Lundberg: One of the biggest efficiency gains we saw in the Duvernay this year.
Chad Lundberg: Deploying the same drilling company for a second year in the off time, they were able to make the rig fully walking dead upgrades to it with respect to the Shaker systems and different things that just like I said allowed us to drive these efficiencies out of the equation.
Speaker Change: Yes, I would just leave it at that efficiency comes from long term relations cabinets firm level loaded programs. It comes from focusing on safety and it comes from a great cross border interaction and just pressing our teams to do better.
Great. Thanks, Chad.
Speaker Change: And I think we are in.
Speaker Change: Now, reaching 30 minutes in the end of our call for today.
I'd like to thank everyone for participating.
Speaker Change: <unk>.
Speaker Change: For those who submitted questions via.
Via the webcast. A few question was not addressed we will certainly strive to reach reach out too.
And with that thank you operator, and thanks to everyone for participating in our third quarter conference call have a great day.
Speaker Change: And with that this brings to a close today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Speaker Change: Okay.