Q2 2025 Baytex Energy Corp Earnings Call

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good day everyone. Thank you for standing by. This is the conference operator.

Welcome to the beex. Energy Corps, second quarter, 2025 financial and operating results conference call.

As a reminder, all participants are in a listen-only mode. In the conference is being recorded.

After the presentation, there will be an opportunity for analysts to ask questions.

To join the question queue. You may press star and then 1 using a telephone keypad. May also submit questions in writing at any time using the form and the lower section of the webcast frame.

Should you need assistance during the conference? You may say no, a conference Operator by pressing star and zero.

I would now like to turn the floor over to Brian ha senior vice president, Capital markets, and investor relations.

Please go ahead.

Thank you, Jamie. Good morning and welcome to be Texas. Second quarter, 2025 earnings call.

I am joined today by Eric Greger our president. And chief executive officer, Chad, kelm, or Chief Financial Officer and Chad lonnberg our chief operating officer.

Before we begin, please note that our discussion today contains 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 and with otherwise specified.

And after our prepared remarks, we'll open the call for questions from analysts.

Webcast. Participants can also submit questions online and we will address as many as time permits, uh, with that. Let me turn the call over to Eric.

Thanks Brian. Good morning, everyone.

We delivered solid operational and financial results in the second quarter that reflect the quality of our assets as well as our focus on operational excellence.

In the Penmen and Dubernet, we achieved the highest 30-day peak oil rates recorded in the West Shale Basin.

These results validate our Technical and operational advances and help demonstrate the exceptional resource potential within our portfolio.

Beyond the do the teams, consistently delivered solid execution across our operations.

Heavy, oil production grew by 7% quarter over quarter. While our eagleford. Team delivered, 2 more strong refracts at half the cost of new wells.

The commodity backdrop in Q2 was soft with WTI averaging. The US 64 dollars per barrel.

In this volatile environment, we remain focused on Capital, discipline prioritizing, free, cash flow and reducing net debt.

Our second quarter results demonstrate our resiliency through commodity price Cycles while maintaining Capital flexibility.

Let me turn the call over to Chad kalmakoff for our financial results.

Thanks, Eric, we delivered second quarter Financial results consistent with our full year plan.

Adjusted funds flow was $367 million, or $0.48 per basic share, and we generated net income of $152 million.

We generated 3 million in brief cash flow and returned, 21 million to shareholders, including 4 million in share, repurchases, and 17 million in quarterly dividends.

Balance sheet, balance sheet strength, remains a priority, net, debt decreased, 96 million or 4% to 2.3 billion supported by a strengthening Canadian dollar.

We repurchased US 41 million, over 8 and a half percent long-term notes, during the quarter as part of our systematic approach to debt reduction.

We maintain substantial Financial Financial flexibility with the US 1.1 billion in credit facility capacity. That is less than 25% drawn and matures in June 2029.

Our long-term debt maturity profile provides significant. Runway with our earliest, no maturity in April of 2030.

Let me turn the call over to Chad lumber for our operating systems.

Thanks, Chad.

We're pleased with the operating performance across our portfolio.

480095. Boe per day. A 2% increase in production per share compared to the same quarter last year.

Exploration and development expenditures totaled. 357 million consistent with our foyer plan and we brought 67 Wells on stream.

in the Pema do Renee, our first pad achieved average 30-day Peak production, rates of 1,865 be per day per well with 3,800 meter, completed lateral links,

The second pad came on stream through early July, with similar lateral links and over the last 26 days, has averaged 1,264 HBU per day per. Well,

our third pad is expected on stream in September.

The performance of our first two pads has exceeded initial rate expectations.

with the first pad, delivering, the highest 30-day peak oil rates today in the west Shale basin,

These results demonstrate our continued advancement in drilling and completions performance.

In addition to our performance, we achieved a 12% improvement in drilling and completion costs compared to 2024.

These efficiency gains strength and well, economics and further support are capital allocation decisions.

With 140, net sections and approximately 200 locations. Identified, we plan to transition to full commercialization through 26 and into 27.

This means we would Target drilling 18 to 20 Wells per year resulting in production, ramping to 20 to 25,000 Boe per day by 292030.

In the Eagle, Ford we brought on stream 15 Wells while realizing an approximate 11% Improvement in drilling and completion costs.

We delivered 2 additional refracts with initial rates comparable, to our broader development program at approximately half the cost.

With 300 brief rack opportunities identified across our acreage, this program extends asset duration while delivering strong Capital efficiency.

Our heavy oil operations continued their strong performance, with production up 7% quarter over quarter.

We brought on stream 43 wells across Peavine, Peace River, and Lloydminster, continuing to demonstrate the capital-efficient development of these assets.

Our team continues to focus on safety and development across our portfolio as we progress through the year.

Let me turn the call back to Eric for his closing remarks.

Thanks, Chad, our second quarter results. Reinforced the quality of our asset portfolio, and our ability to execute through volatile market conditions.

The top performance in the Pema dubernet highlights the asset strong value and growth potential. While our heavy oil operations, continue delivering strong returns, and our Viking and eagleford assets, provide reliable cash flow, and asset duration.

We remain committed to rigorous Capital allocation and regularly evaluate opportunities within our portfolio to maximize shareholder value.

The operational achievements delivered in the second quarter provide us with valuable options as we continue to optimize our plans.

Based on forward strip pricing, we expect to generate approximately 400 million dollars of free cash flow in 2025 with the majority weighted to the second half of the Year. Given our production and capital spending profile, we plan to allocate a 100% of free cash flow to debt. Repayment after funding quarterly dividend payments targeting, net data of approximately 2 billion dollars by year end.

Looking ahead. Our oil weighted production profile provides significant exposure to oil price upside with approximately 84% of our production weighted toward crude oil and liquids every us 5 dollar per barrel change. In WTI impacts our annual adjusted funds Flow by approximately 225 million on an unhatched basis.

This positions us well to benefit from any oil price recovery.

We remain focused on operational, excellence Financial discipline and positioning Bex to deliver sustainable long-term value for Share value for shareholders. Operator, we're ready for questions.

We will now begin the analyst question and answer session to join the question queue. You may press star and then 1 on your telephone keypad, you will hear a tone a request

To submit your question in writing. Please use the form in the lower, right section of the webcast frame.

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To withdraw your questions. You may press star and 2

We will pause for a moment as callers join the queue.

Our first question today comes from Amir Arif from ATB Capital, please go ahead with your question.

Thanks. Good morning guys, a couple of quick questions just just with the 12% Improvement that you're citing in. The duet, can you uh let us know what your average will cost is averaging up there.

Yeah, thanks are good morning. Um, the average well cost so far this year has been running right at 12 and a half million dollars. Uh, so for a 122,000 foot lateral uh, 12,500 foot lateral, that's you know, right at 000 dollars per completed lateral foot. And, uh, you know, that's I I think affords us continued, uh, opportunities for improvement as well. So we're targeting a lower value over time, but that's kind of where we stand today.

Got it. And, and based on your comments of eventually moving to commercialization in 2627. So we think about like 1 week program for 26, like 12 month program next year.

Well, so, yes, uh, we are eventually moving in 2027 to a 1- rig levelized program. We think that, uh, will generate 18 to 20 Wells per year. So a single rig running around the calendar, a mirror, uh, will be an 18 to 20 while pace of development next year, in 2026, we're targeting 12 to 15 Wells. Uh, you know, it it, uh,

Kind of depends on, uh, you know, the, the balance of the year and, and kind of commodity price, let's say, in in 2026. But uh, we're shooting for 12 to to 15 and that continues to step toward full commercialization. We're very pleased, very encouraged, uh, by the opportunity for, uh, for this commercialization and and moving toward, uh, full development. But 1 Rigg will be higher than, uh, than 12. So next year won't quite get

Okay, no appreciate that. I appreciate the color there, just switching over to the eagleford. The uh iPads are fantastic. And then those are essentially like a new. Well rate do is the decline rate different posts that refracts.

It's still a little early. Okay, yeah, yeah. So um, yeah, the, the early rates are strong. The pressure performance is strong. Everything we can see so far, uh, within the reservoir characteristics, you know?

Uh, Dynamic and, uh, Dynamic testing indicates to us that, uh, we're touching all new Reservoir. Um, and, and that's really encouraging, but it's a little bit too early, uh, on the 2 references to know, you know, really, uh, with data spec specificity around decline rates

Um, so far, so good. They feel very strong. And, and we have every indication that we're touching new Reservoir in in these, uh, in these refracts. So, uh, that's strong

Okay, having just 1 final question if I can. Um but pleasantly surprised to see that your cost per lateral foot even improved illegal for like by meaningful amount 10% or 11% and what what what are you doing differently over there? Like I I would have thought it's more of a mature play where you could just be getting a few percentage Point improvements per year.

Well, I'm going to pitch that 1 over to Lundberg. Chad, why don't you uh, comment on kind of some of the progression around Drilling and completions improvements on the capex side and and efficiency improvements as well.

Okay, yeah, I mean it's a combination of 2 things. We're seeing some

Uh, relief from our service partners with just service cost reductions. You know, most notably, you see.

uh, drill rig activity levels and Frack productivity levels in the US. It's no secret that they've been dropping, uh, significantly. So we have seen some relief from our from our service companies on the cost side.

Improvements on the efficiency efficiency side. Lastly, though I'd point to we made a a conscious effort to switch late last year and then, through most the half 1 this year,

To field gas on the on the Frac side. And so instead of burning diesel to power the equipment to put the net energy into the ground, we're able to plug in to the to the gas flows, right on site. And so that's a that's been a meaningful savings as well. So savings efficiencies and just a little bit different Plumbing on lease for how we're capturing and Air.

Okay. And then Chad, if you have to break out that 11%, in terms of service cost, reduction versus these efficiencies is a rough number that you could give

Oh, I think you know we're in the 50% uh both sides. Okay. And so and you know, I I would just point out efficiencies are sticky and and that's why we get more excited about them, you know, because they last through all parts of the commodity cycle.

Okay, sounds great. Well, congrats on the good operating results. Thanks.

Thank you.

And ladies and gentlemen, with that we'll be closing the question and answer session from the phone lines. I like to turn the floor back over to Brian. Ector for questions, received online

Great thing. Thanks, thanks operator. I do have a several questions coming in on the webcast, some from our analysts and a few from investors as well.

Continuing with the Pembina dubernet performance.

We speak to Eric, can you speak to the variability across the 3 Wells? So we talked about the performance of the 701 pad, there were 3 Wells on that pad. Can you speak to the variability was there much variability in each of those 3 Wells?

Yeah, so uh, I'm going to let uh, Chad comment on this Chad Lindberg over to you.

Yes, on the I mean on the pad itself, they're pretty localized. Uh well uh we see consistent performance across them and then

um the differences in rates between um the pad in the South the pad in the north, I mean let's face it, there's Rock characteristic, differences, Reservoir characteristic differences,

uh and then we are also trying some different ways that we

Um not not so much complete the wills but maybe more on the on the facility side, the flow back side. And so while we see an IP difference, we think that these naturally will will Trend to a similar.

EUR pattern ultimately through time, but but the reality is there is going to be differences throughout the play. I think what we're most excited about is these both, these pads are exceeding kind of certainly our expectations and and our internal curves at at this point. But it's early. I would, I would just caveat it with its early and and we'll see where they go from here.

All right, 1 more question related to the dub grenade. Um and that's on the infrastructure side just can we discuss the potential infrastructure spending needed to expand the function in the company to do?

Yeah, I mean I think we've got that.

Fairly well characterized right now. I mean you saw our Gibson deal that we announced uh last quarter or 2 quarters ago, where they're taking some of the infrastructure burden off of us. We're we're still pleased with the agreement and the synergies that we're creating uh, with G Gibson's, we think facilities. No doubt are going to be some upfront and loaded. We, we think about it as, you know, 25 to 30 million dollars a year for these early years liberating itself to a, a lower rate in the out years.

And I think the last note I'd make is some of the major facility when you think about unconventional resource major facilities spend is on gas plants and and gas handling the benefit. We have is we're overlaying a you know a cobweb of earlier development that was gassier cell development. So we've got we've got gas pipe all through the area.

And then we've got a large gas processing facility with Kiara 1 of our 1 of our partners. That's not full. We don't anticipate that it fills to the life of the place. So so it's got

Uh, we have significant capacity to handle all the molecules we anticipate flowing into the future. Said differently, we don't have to go out and build what we would think of as the largest capital contributor to these unconventional gas processing.

Let's switch to the eagle for for, for a minute here. Um, we talked with the refra, uh, in the quarter by Eric. How are we looking to layer in capital on on the reef rack opportunities in the eagle for given the depth of the inventory there?

Are very excited about the refracts. The team has gone from proof of concept last year to, uh, to really strong successful refracts to to follow up the successful proof of concept last year. So couldn't be more excited. Uh, we've got 300 opportunities, uh, identified in our current base and we intend to step up the pace of our refracts, bringing those into the program, uh, with greater frequency. So as it stands today, the way we see 2026 is somewhere in the 6 to 10 refracts range.

And uh again given the economic performance of these and the capital efficiency, uh, you know, we're going to, we're going to lean on that.

To Eric on on the non or early piece of work or or ego for asset. Um, those that program is now offered in quite conical. They've been offered in the wells for over a year. Post their acquisition of marathon, can you just speak to any changes in their process or approach with regard? To the non off asset and, and our relationship with the operator. Yeah, we've got a great relationship with conaco. Uh, we had a great relationship with Marathon uh, you know, as a as a significant working interest partner in uh those KS uh mutual interest areas.

Uh, we work closely with them. And, you know, across the organization, uh, we get good information from them. They, they're very thoughtful about how they develop, their very thoughtful about how they plan. Um, they were thoughtful and diligent in their in their timing, of providing us the 2025 program. Uh, they told us to use the 1, we had until, uh, until we heard. Otherwise they've delivered a new 25 plan to us and, uh, we're satisfied with it. So we believe that we've got a strong relationship, and we believe that, uh, the development is going to is going to continue, uh, moving forward. And we're very comfortable with, uh, with the plans that we've seen.

Okay. And and I've got 1 more question to ask today, uh, on the financial sighting has been shot. Comma Fox is at the conversation. Chad, how are we thinking about our hedging strategy going forward?

Thanks, Brian. Yeah, I don't our heading strategy, I don't think has changed. So we're fairly hedged here in in 2025. Uh, on the oil side, we've been targeting 60 floors. And then selling, uh, calls on top of that to kind of fund the puts where we can. So generally speaking, we use it as a bit of an insurance product

About 2 4 kind of based on the balance sheet and and asset kind of bring, you know, where we started flowing back Capital below that sixty dollar floor, level. So feeling, good about, where we have 25, as we look into 2026,

Uh, we're lately headed at this point, but still, uh, looking at that same framework where we want to have that situation, put floor, uh, given where prices are today. Uh, the calls aren't, uh, aren't as high as they were at 1 at 1 time but uh, we started layering in a little bit here into q1. Uh, you know, when prices have spiked the back rotation of the curve is still being pretty strong, but we're trying to layer in 60 by kind of, you know, low mid 70s uh where we can get them. And we'll we'll continue to do that through the balance of this year. And look to have 40% hedged uh by the end of this year if we walk into 2026, all right, thanks Chad. Um and that does wrap up today's call on the Q&A portion. I'd like to thank everyone for joining us.

Um,

thanks again for your time today and have a great day.

This brings to a close today's conference call, you may disconnect your lines, thank you for participating and have a pleasant day.