Full Year 2024 Baytex Energy Corp Earnings Call
Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corps 4th quarter and year end conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity for analysts to ask questions.
To join the question cue, you may press star then one under telephone keypad. You may also submit questions in writing at any time using the form in the lower section of the webcast frame.
Speaker Change: Should you need assistance during the conference call, you may signal an operator by pressing star than zero. I would now like to turn the conference over to Brian Ector, senior vice president, capital markets and investor relations. Please go ahead.
Speaker Change: Thank you, Michael. Good morning, ladies and gentlemen, and thank you for joining us to discuss our fourth quarter in fully year 2024 financial and operating results.
Speaker Change: Today I am joined by Eric Greager, our President and Chief Executive Officer, Chad Kalmakoff, our Chief Financial Officer, and Chad Lundberg, our Chief Operating Officer.
Speaker Change: While listening, please keep in mind that some of our remarks will contain forward-looking statements within the meeting of applicable securities laws.
Speaker Change: 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.
Speaker Change: On the call today, we will also be discussing the evaluation of our Reserves at year end 2024. These evaluations have been prepared in accordance with Canadian Disclosure Standards, which are not comparable in all respect to United States or other Disclosure Standards.
Arifarus regarding reserves are also forward-looking statements.
Speaker Change: All dollar amounts referenced in early marks are in Canadian dollars, unless otherwise specified.
Speaker Change: and following our prepared remarks, we will be taking questions from analysts. In addition, if you are listening in today via the webcast, you will have the opportunity to submit an online question in time permitting, we will strive to answer your questions. With that, I will now like to turn the call over to Eric.
Eric Greager: Thanks, Brian . Good morning, everyone, and welcome to our year-end 2024 conference call.
Eric Greager: I'm excited to discuss our 2024 results, but first, I want to take a moment and recognize the hard work of our high-quality teams in Texas and Western Canada.
Eric Greager: We have a strong and resilient organization that we are all proud to be part of.
Eric Greager: We would like to give a special mention to our field staff who work under extraordinary conditions. We were reminded of that again this year with extremely cold temperatures across North America.
Eric Greager: We are grateful to our employees and contractors for their commitment to operating safely and their perseverance to deliver energy to power people's lives.
Let's turn to the highlights of 2024.
Eric Greager: Our 2024 production and capital expenditures were in line with original, full-year guidance and our results speak to our disciplined capital allocation philosophy that continues to deliver increased per share returns.
Eric Greager: In 2024, we generated 10% production per share growth and grew reserves per share across all categories.
Eric Greager: We improved our cash cost structure by 5% on a BOE basis. We increased our 2p net asset value per share by 13% and we reduced net debt by 5% in Canadian dollar terms and 13% in US dollar terms.
Eric Greager: It's important to keep in mind that most of our debt is held in US dollars and converted to Canadian dollars for reporting purposes.
Eric Greager: On the reserve front, we replaced over 100% of our production on both 1P and 2B bases.
Eric Greager: importantly, our booked drilling locations within our 2P Reserves report represent only half of our net risk drilling inventory.
Eric Greager: We generated strong PDP recycle ratios of 1.9 times and 2.7 times on a 1P and 2P bases.
Eric Greager: respectively, which reflects the efficiency of our capital program and our high net back oil-weighted portfolio.
Eric Greager: Across these important value creation measures, I am pleased to say that our team delivered. Now I'll turn the call over to Chad Kalmakoff to discuss our financial results.
Chad Kalmakoff: Thanks Eric. Our 2024 results demonstrate our commitment to generating an painful pre-cash blow, and building strong, shareholder returns.
Chad Kalmakoff: We generated free cashflow of $6266 million in 2024 and consistent with our plan and the timing of our capital program, over 70% of the free cashflow was generated in the second half of the year.
Chad Kalmakoff: With our balance, shareholder return frameworks, we allocated about half of our pre-cashable to debt reduction and the balance to shareholder returns, which includes share buybacks and
Chad Kalmakoff: In 2024, we repurchased 48 million common shares, sending 6% of our shares outstanding. In addition, we declared four quarterly dividends of $2.25 per share.
Chad Kalmakoff: Over the last six quarters, we generated free cashflow of $1.1 billion and returned $550 million to shareholders through our share buyback program and dividend. This includes virtually more than 10% of our shares were standing.
Eric Greager: That reduction continues to be a priority. As Eric said, in Canadian dollar terms, we reduced net debt by 5% in 2024. But in US dollar terms, the reduction was more significant at a 13% reduction.
Eric Greager: A stronger US dollar benefits our top-line revenues and bottom-line free cash flow. In 2025, we expect to generate approximately 400 million of free cash flow at US $70 WTI.
Speaker Change: Senator 2024 based on our production profile and timing of capital expenditures, the majority of our free cash flow is expected to be generated in the second half of the year. Now we'll turn the call over to Chad Lundberg to discuss our operating results.
Speaker Change: Thanks, Chad. I am pleased with the results of our 2024 program. We safely executed on budget and delivered production consistent with our original full year guidance.
Speaker Change: Across our portfolio, we delivered strong drilling and completions performance in the Ego Ford and Pemina Duverne, and further delineated art clear water and manville heavy oil acreage.
Speaker Change: In the Eagle Ford, we brought on stream 64 wells, including 51 operated.
Speaker Change: Our development program was largely focused on the black and volatile oil windows of our acreage, and we realized an 8% improvement in operated drilling and completions costs per completed lateral foot over 2023.
Speaker Change: In 2025, we intend to run a consistent two-rig one-fractrew program and are in the process of realizing a further 7% improvement in drilling and completion efficiency.
Speaker Change: In our Canadian light oil business, we brought on stream seven strong welds in the Pemina Duverne and made substantial strides in advancing our understanding of the play.
Speaker Change: In 2025, we have expanded our program to include three well-pads and look forward to sharing the results of the program later this year.
Speaker Change: In the Viking, we brought on stream 95 Wells and anticipated a similar program in 2025.
Speaker Change: Our heavy oil business continued to deliver top well results in 2024. We brought on upstream 31 clear water wells at T-Vine.
Speaker Change: Nine Wells at Peace River and 40 Wells across the broader Manville Group in Lloyd
Speaker Change: In 2025, we expect to bring on stream 112 heavy oil wells, including 33 clear water wells at the P-vine.
Speaker Change: As we progress through the year, our operating teams will continue to focus on safe and efficient development across our portfolio.
Eric Greager: and with that, I will turn the call back to Eric for his closing remarks.
Thanks Chad.
Eric Greager: I am pleased with our 2024 operating and financial results, our free castle generation, and our demonstrated commitment to safe operations and shareholder returns.
Eric Greager: For 2025 our full-year guidance has unchanged with exploration and development expenditures of 1.2 to 1.3 billion and production of 150,000 BOE a day at the midpoint.
Speaker Change: As Chad Lundberg mentioned, we are planning an efficient, level-loaded pace of development in the yield ferd.
Speaker Change: Further acceleration and advancement of the Pamela Duverne and continued efficient heavy oil development.
along with a level Viking app operation.
Speaker Change: We're well-capitalized and remain focused on discipline, capital allocation, prioritizing safe operations, free cash flow generation, and shareholder returns. And now, operator, we are ready to open the call for questions.
We will now begin the Analysts question and answer session.
Speaker Change: To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. To submit your question and writing, please use the form in the lower right section of the webcast frame.
Speaker Change: If you are using a speaker phone, please pick up your handset before pressing the keys. To start your question, please press star than two. We'll pause for a moment as collars join the queue.
Speaker Change: The first question comes from Mino Holeshoff with TD Securities. Please go ahead.
Mino Holshoff: Thanks and good morning everyone. I'll start with a question on tariffs given yesterday's update and maybe I should know this but have they actually taken effect today and if so, what are the mechanics?
Speaker Change: of it. And how is that flowing through the business? And Eric, maybe giving your strong industry connections in the US, what is your gas gas on how all of this plays out?
Speaker Change: I think Mano, first of all, good morning. Thanks for the question.
Speaker Change: As far as we know the tariffs have been implemented and are effective this morning so that's the best information we've got.
You know what, I-
Speaker Change: The structure of these is still I think a little bit of a moving target because things move around you know it seems like constantly
Speaker Change: What I would say is these are import tariffs, so products flowing into the United States. The importer is charged to duty, and that duty is the direct kind of first order consequence of the tarot.
Speaker Change: and that's pretty straightforward, I think, to calculate. The thing that becomes really difficult is the second and third-order consequences and how those impacts are distributed through the economy, all of the forward and backward linkages and what that means to distribution of impacts.
Speaker Change: My hunch is that if the impacts are uniform on Canadian energy imports to the United States, that it's going to disproportionately impact Midwest refiners because of their dependence on pipeline connected WCS.
and I expect that to be pretty substantially negative.
Speaker Change: and that's not going to be entirely borne by the Canadian Energy Exporter. That's...
Speaker Change: What I think will ultimately begin to happen, but I think the tariff conversation both the quantum and some nuance between product streams is also probably still a moving target.
R-R-R
Speaker Change: Shielded to a certain degree because 60% of our production originates on the U.S. Texas Gulf Coast.
in Texas, sold in Texas.
Speaker Change: Denominated in U.S. dollars and handled in our U.S. operation, our U.S. organization and paid down against U.S. debt all within the ring fence of the U.S. to the extent that all happens within the four corners of the U.S.
Speaker Change: and that protects us. That insulates us to what degree, you know, over the long arc of time. That's all going to change and
kind of share impacts. It's difficult to know, but we do expect some insulation.
Speaker Change: directly as a consequence of that 60% cash flow from the U.S.
I'll visit her now, I think.
Speaker Change: Sorry, Matt, other than that, the only thing I think that is worth pointing out is that, you know, the best reflection of tariffs flowing through any of our businesses in Canada as Canadian producers is on the basis of sales, right? We'll watch that. That'll price the impact in kind of continuously. Sorry, go ahead, Matt.
Speaker Change: No, that was that was that was that was great color Eric maybe um maybe I'll just flip over to
Speaker Change: What changes should we expect in terms of how you allocate capital into the end of the year and beyond?
Yeah, it's a great question, meadow, and you know, we've been...
Speaker Change: I would like to say preparing for this, if you think back to our December 2025 budget when we released it, we marked that against a $65 WTI environment, and in that period of time of late in 2024.
Prices, you know, were...
Speaker Change: You know, in the mid-Eye 60s and the 2025 forecast looked weak.
We will rationalize low returning projects.
Speaker Change: when prices drive those returns to the point of it not being worth investing the capital in. And those will be distributed across our portfolio. There's probably no part of our portfolio that will be immune to it.
Speaker Change: because we have a distribution of assets across each play and we're running asset level economics economics which honor obviously the basis differentials, the local pricing and all the rest and so
Speaker Change: I can't give you a quantum right now, but what I would say is if prices move down to sixty, there will be a couple of consequences. One, we and many others.
Speaker Change: are likely to pull back on capital activity and that should help solve the problem.
Speaker Change: The other thing that will happen is input costs will fall as a consequence of that reduced activity and that should lower break even not just in our business but in others as well and so with that I'll kick it back to you mental and see if you've got other thoughts.
Mino Holshoff: No, that's it for now, thanks Eric, I'll turn it back [inaudible]
Thanks, Madam.
Mino Holshoff: Again, if you have a question, please press star then one.
Speaker Change: Our next question comes from Greg Pardy with RBC Capital Markets. Please go ahead.
Speaker Change: Hey, good morning. This is Rob Mann on for Greg Pardy, and thanks for taking my questions. My first one just around you reported F&D costs, which came in much lower relative to 2023. Is there anything specific you could point us towards that drove the improved results?
Yeah, yeah, well good morning. Thanks Robert.
You know.
Speaker Change: Performance and in the quality of the high value oil stream.
Speaker Change: I'm going to see if Chad Lundberg's got anything he wants to add to that, but I think this F&D commentary and the whole strong PDP reserves print really is a function of cross-the-board improvements. And maybe Chad can talk a little bit more about just the CAPEX.
Speaker Change: and Prism said I'm in May across the board, but in particular in the Eagle Fird. Well, yeah, I was just going to go to the results we drove out of the Eagle Fird last year, we saw...
Chad Lundberg: A percent improvement in our capital costs, and that's manifesting itself to the reserves book with respect to future development costs and ultimately driving.
Chad Lundberg: in this case, a stronger F&D. We're proud of, in this case, the Texas team we think we have more efficiencies coming this year.
Chad Lundberg: up towards the 7% that we're starting to realize as we operate now through Q1.
Chad Lundberg: and so keeping the trend going. I think just the last piece on Offix, it's not all a capital cost equation. On the operating front it's the same, a full court press across the entirety of our operation and we have been realizing, again, some strong results there.
Speaker Change: No, that's great, thank you. Maybe just for my next question, shifting gears a little bit. Just see your doverney activity this year. Could you provide us with any additional details in terms of timing and drilling program specifics, and I'll leave it there after that. Thank you.
Speaker Change: Great, thank you. DuVernay, we have our drilling rig mobilized and we've been drilling ahead since the beginning of the year. We'll keep that rig on location, drilling these three well pads.
Speaker Change: and everything is moving according to plan. We continue to make improvements both in the design and in execution. You might recall last year I was really...
You know, positively [inaudible]
Speaker Change: Impressed with the pace of improvement, I think we drilled those wells in 2024, 20% faster and 10% cheaper than the year prior, and we're on course to continue to make improvements.
Speaker Change: not just on the cost side of the business, but on the capital side of the business and importantly we've still got levers to pull and designs in the works that will drive improved well performance.
Speaker Change: out of the reservoir and so I think there's still a lot to go there but three three well paths are underway and as soon as we have the opportunity to move in the frat crew on the first pad we'll do so Chad you want to add some color to the timing there? Well I was gonna add two things so I mean we're just releasing our first
Speaker Change: Drill, that means we're getting into completion operations. You could expect results in the...
Speaker Change: in the Q2 release time frame on the first pad coming online. Just Eric's point, we're going to continue last year's efficiencies. He talked about the capital reductions, the drill day reductions. We've also moved long ways on just development, understanding of the play.
Speaker Change: Distimulation, and then a lot of that, I think the last point, would be the cross-border collaboration with the Ego Ford, where we're really just understanding the unconventional space and taking our learnings from both areas to deploy into each other and make them better.
Eric Greager, Brian Ector, Brian Ector, James Maclean
That's great. Thanks guys.
Speaker Change: This concludes the question and answer session from the phone lines. I'd like to turn the conference back over to Brian Ector for any questions received online.
Speaker Change: on the Pevine Métis settlement area, 44.5 net sections of land acquired. Just a comment on some additional color around that exchange, out since we exchanged. It was a cashless transaction, I believe, any color you can share around that.
disposition.
Baytex, heavy oil team.
Speaker Change: and I don't mean to peevine matey, you know, that the surface owners and the community in which we operate, but more importantly I'm referring to, you know, the operating partner that traded these lands.
Speaker Change: You know, they were adjacent to us. They weren't having the same success on these lands that we've enjoyed within, you know, the confines of our, our, our, our pee vine.
Asset Boundaries, and so.
Speaker Change: Cora up a little bit and so we took the strength and scale of our p-vine asset and Cora up around it.
Speaker Change: and we had other things to offer the counter party that were more valuable to them than they were to us. So it's really a win-win and it's good business. We've got a great relationship with the other parties up there and it just worked out well for both sides.
Okay. Thanks, Eric.
Eric Greager: The U.S. dollars, you know I'm going to hit it again. You have some prepared from Eric and Chad. You spoke to him as well. In U.S. dollars, we paid off $241,000,000 in 2024. It's less up in Canadian dollar terms. Eric, can you just...
Speaker Change: or Chad provide some additional context or color on our reporting of our death and actually the every payment that we're seeing. Yeah, I'm going to start and then I'm going to kick it over to Chad to fill in the blanks.
Speaker Change: because I probably won't get it all comprehensively answered. I think it's really important to understand that most of our debt.
Speaker Change: with US dollar statements, and that's the native currency. So when we report on any of these data instruments,
Speaker Change: We have to convert into Canadian dollars for Canadian reporting purposes.
and when U.S., Canadian, FX.
Speaker Change: expands when the US dollar strengthens against the Canadian dollar. Then what happens is
Speaker Change: that multiplier goes up and it makes the debt look as though when you reported in Canadian dollars, look as though it's not going down as fast as it really is.
because in the native currency we're paying it down.
Speaker Change: but it's being multiplied against an ever-increasing, you know, weakening Canadian FX multiplier. And that has been difficult to describe.
Speaker Change: over time and so what we're trying to do today and going forward is to describe our US dollar denominated debt in US dollar paydown because that's the most
Speaker Change: Clear and straightforward way to do it, and it then allows readers to understand that we've actually paid down more US dollar debt.
Speaker Change: in a quantum. And the dollars are bigger when you pay down a US dollar versus a Canadian dollar. So we've paid down more and they're bigger dollars.
Speaker Change: So we've made a lot more impact than has previously been, I think, appreciated so...
Speaker Change: That's kind of a long answer, but Chad, am I anything you'd like to say beyond that? No, I don't have anything. I think the other commentary would be generally...
Speaker Change: We do have 60% of our business in the U.S., so we kind of look about it. The U.S. dollar debt being naturally hedged against the value of that U.S. business. We generate U.S. cash flows, which we can then repay in U.S.
Speaker Change: You know, it is a bit of a nuanced conversion conversation on the day of reporting that the decade's value to on versus kind of the longer term, you know, debt pay down which
Speaker Change: is not a problem I had to give in the size where U.S. business. Yeah, another way to think about it would be to add the debt reduction in Canadian dollar terms to the FX line.
Speaker Change: some of those two and that is in Canadian dollar terms what you would have paid down in US dollar terms given the exchange. It's a different way to think about it, but it's important to understand that the native currency is US dollars.
Speaker Change: and it has to be converted to loonies for reporting purposes, to Canadian dollars for reporting purposes. And that's an important thing to understand.
Speaker Change: Okay, thanks, thanks guys. I think part two of the question and Chad, you may have already answered this but have you considered or have we considered hedging the FX rate related to our data?
Speaker Change: Yeah, I guess short answers we have, I think, you know, when we issue the debt generally speaking we think of the hedge as a natural hedge against the US business. So I know I guess another way to think about that is we had an entirely Canadian business.
We may have considered hedging.
Speaker Change: It's also important to understand that when the U.S. dollar strengthens,
Speaker Change: Our revenues at the top line benefit and that flows all the way through the business to our bottom line free cash flow which also benefits.
Speaker Change: as a result of a strengthening US dollar. If we talk just about Catholics or just about debt in Canadian terms, it gets distorted because of this translation. But you have to understand
Speaker Change: Top line revenues benefit from strong US dollars and that flows all the way through the business to stronger free cash flows at the bottom line.
and so the final question.
Speaker Change: relates to the $1.5 billion debt target that we have laid out to achieve, and are there any opportunities to the portfolio, Eric?
that could.
Speaker Change: to accelerate the timeline to reach that target. Yes, thank you, Brian , and I think...
Speaker Change: This is an ongoing conversation you might recall at the end of 2023. We sold a third of our Viking. We called that asset for again in Plato, and we applied that, those proceeds straight to our outstanding debt balance.
Speaker Change: Just a few months ago, we sold a small thermal operation in Saskatchewan called Carobert Thermal, that also, the proceeds from that sale also went straight to debt, and that should, you know, demonstrate our willingness to continue to find opportunities within our portfolio.
Speaker Change: The thing that's challenging is you don't want to sell assets that are disproportionately beneficial to the whole world in terms of their free cash generative.
Speaker Change: Capacity, right? So you wouldn't want to sell more cash flow than then you get in the benefit of proceeds or sell it at a, you know, too low a price.
Speaker Change: So the answer is yes, we do continue to think about it and we do continue to act on it.
Speaker Change: when the opportunity presents itself. In the meantime, we will continue acting prudently within our business to generate free cash flow and allocate that free cash, so to both debt repayment and shareholder returns.
Speaker Change: A question on the shareholder's return to Framework for Eric, we get questions asked around, we talk about the debt repayment, I guess it's just reinterrating, you know, our commitment to the existing shareholder's return framework, the composition of buybacks.
for a share for a year.
and that's a fixed-based dividend, every share benefits from that quarterly. The other...
Speaker Change: The other portion of direct shareholder returns is you know through our normal course issue a bit so we continue to buy back shares and that continues to improve the business over time and then the other half of the free cash was allocated to debt repayment.
Speaker Change: So this is more than, you know, this is five years on one on one note and, you know, seven years on another note and when we refinanced.
Speaker Change: The bonds in 2024, we took a point and a half of coupon out when we refinance them and our credit facility by refinancing, we are also able to push our credit facility term period out two more years to 2028.
Speaker Change: So we have $344 million Canadian balance on our credit facility in a decent price environment that's gone in four or five quarters.
and, you know, we have a credit facility with...
Speaker Change: Lots of capacity, no outstanding balance and years of fixed-term remaining before the bonds become current.
Speaker Change: and that gives us lots of opportunity to buy them in the market and manage that over time and so it's really important to understand the quantum might seem high, but the term structure of the debt and the cost of that debt.
Speaker Change: in coupon terms is pretty reasonable. It's about six and a half percent on an after-tax basis.
Eric Greager: Okay, thanks, Eric. And I have a couple of questions of command on just the...
Speaker Change: the share price performance of late Mendo alluded to it in his opening questions around WTI prices and where they're at. Just a comment Eric as we wrap up on the share price and your thoughts are on what's going on in the macro environment.
Speaker Change: is what has pushed prices down. We will continue to monitor the situation and react prunely following the economic guidance of our assets.
Speaker Change: and we will not make non-economic investments and so if the price environment forces us to do so, we're prepared to do so.
Speaker Change: But we did roll this budget out and it's current construct with an I towards $65 WTI, which is kind of where we were when we rolled it out and where we are today.
Speaker Change: I'm not concerned about the resiliency of the U.S. economy. I believe the U.S. economy is strong and I believe almost everyone who's watching the fundamentals, you know, agrees. And so, you know, this...
Speaker Change: Period, they'll be periods of upcycle and downcycle, and we're prepared to react properly and prudently to those downcycle environments.
Speaker Change: will reach the end of today's call. So, I'd like to thank everyone for participating. For those who submitted questions, be in the webcast. If your question was not addressed, please reach out to our investor inbox and we will be sure to respond. With that, thank you, operator, and thanks to everyone for participating in our UN conference call and have a great day.
Speaker Change: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.