Baytex Energy Corp (BTE) 2006 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Baytex EnergyTrust second quarter results conference call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded, Wednesday, August 9, 2006. I would now like to turn the conference over to Ray Chan, President and Chief Executive Officer; and Derek Aylesworth, Chief Financial Officer. Please go ahead, sir.

Thank you, Kelly. Ladies and gentlemen, while listening, please keep in mind that our remarks on this conference call contain certain forward-looking statements within the meaning of the securities acts. We caution that assumptions used in the preparation of such information, although considered reasonable by us at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors, many of which are beyond our control. There is no representation by Baytex that actual results achieved during the forecast period will be the same in whole or in part as those forecast.

Thank you, Derek. Ladies and gentlemen, the second quarter of 2006 could be called a good news/bad news quarter. Oil price was the good news. After setting all-time highs and averaging U.S. $63.48 in the first quarter, prices continue to result -- they assault on the record books and climb another 11% to average U.S. $70.70 in the second quarter. On the other hand, gas price was the bad news. After setting double digit record prices early in the winter, gas price went on a tail spin due to unseasonably warm temperatures. Concerns with extremely high storage levels drove gas prices down from 60% from the high set back in December and January.

For Baytex, the news -- good news outweighed the bad news. Not only is our production 70% weighted to oil, but we were also helped by a dramatic reduction in heavy oil differentials in the second quarter. We generally expect differentials to be narrow in the spring and summer due to seasonal increases in demand for refined products from heavy oil such as asphalt. In fact, over the last 20 years, [INAUDIBLE - heavy accent] differentials averaged 29% in the second quarter compared to 31% in the first quarter. This year, however, the narrowing of differentials was driven not only by seasonal factors but also by fundamental development in the pipeline infrastructure that transports Canadian heavy crude to various refining regions of the United States. The result was an average oil blend differentials of 26% in the second quarter compared to the 46% average for the first quarter of this year. So far in the third quarter, differentials are about 23%. We feel very optimistic about the long-term outlook of heavy oil differentials, as there have been numerous announced projects and very significant industry investments committed to building pipeline infrastructure and adding heavy oil refining capacity over the next five years. We see increasing demand for Canadian heavy oil as a secure supply source for the North American refining industry.

Second quarters usually brings about production curtailment due to spring breakup conditions. Last year, Baytex experienced a 6% production drop in Q2 from Q1. This year, the production comparison was similar not only -- as not only our heavy oil production was affected by breakup conditions, our gas production was also hampered by some unexpected restrictions at certain third party processing facilities. But as in previous years, our capital programs are geared towards increasing production in the second half and we are maintaining our production target of 35,000 BOEs per day average for 2006.

Cash flow for the second quarter was 39% higher than a year ago and similar to the cash flow in the first quarter. Comparing Q2 to Q1 in 2006, a 6% decrease in production and a 20% decrease in well head gas price were exactly offset by a 22% increase in well head oil price. A payout ratio after a modest 5% participation in our trip program was a conservative 53% for both the second quarter and the first half of this year. This compares to a 62% paid out ratio in the first half of 2005 despite a 7% increase in the number of units outstanding and a 20% increase in per unit distributions thus far in 2006.

Our financial position also reflects continuous improvement in our business. The $100 million 6.5% convertible debentures issued in June of 2005 were reduced to only $30 million a year later. The strong Canadian dollar also reduced equivalent principals of our U.S. dollar denominator senior subordinated notes. In all, our total net debt at the end of June 2006 was $20 million below that at year-end 2005 and $89 million below that of one year ago.

We have revised our capital budget for 2006 to $128 million from $105 million FERC established late last year. Approximately $10 million of this increase is due to industry inflation beyond levels anticipated in our original budget. The remaining increase represents incremental activities planned to realize our new opportunities identified. For this high of spending, we hope to increase our 2006 exit production beyond 35,000 BOEs per day. We feel very comfortable in funding this revised capital budget. In fact, based on current outlook for commodity prices and our second half production profile, we see an operating cash surplus for the second half of 2006 after the funding of cash distributions and the expanded capital programs.

Baytex trust units have been a top performer so far in 2006 amongst the 30 plus oil and gas income trusts. With even stronger financial metrics expected for the coming quarters, we are confident that we will be able to deliver continuous superior return to our unit holders. Ladies and gentlemen, this is the end of our prepared message and we're now open for questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS) Mr. Chan, there are no further que -- there are no questions at this time.

Thank you, operator. Thank you, ladies and gentlemen, for spending time attending our conference call. We look forward to reporting our Q3 results in three months time and hopefully give you more update on our operations. Thank you.

That does conclude the conference call.