Baytex Energy Corp (BTE) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Baytex Energy Trust 2007 year end results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, you can we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Wednesday, March 12, 2008. I would like now to turn the conference over to Mr. Derek Aylesworth, Chief Financial Officer. Please go ahead, sir.

Thank you. Ladies and gentlemen, while listening, please keep in mind that our remarks in 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, thank you for your time and taking the time in attending our fourth quarter and year end 2007 results conference call. I will let Tony and Derek provide a view on the operations and financial results. I will provide some summary comments and we'll then be open for questions. Here's our President and Chief Operating Officer, Tony Marino.

Thank you, Ray. Our operating results continue to be strong in the fourth quarter and for 2007 as a whole, with respect to both production and to reserves. We achieved record quarterly production of about 39,300 BOE per day in Q4. This resulted in a second half production average, post acquisition of the Pembina and Lindbergh assets of about 38,700 BOE per day. For 2007 as a whole, we averaged over 36,200 BOE per day, which was also a record. These production results were aided by strong performance in both of the properties acquired at the end of the second quarter.

For Pembina and Lindbergh combined we averaged approximately 6,000 BOE per day in the second half, which is quite a bit above the 4,500 BOE production level at the time we announced the acquisition. Our heavy oil production performance in general was also quite strong, averaging about 22,200 BOE per day in the fourth quarter.

Results at Seal were particularly encouraging. We continued our record of 100% horizontal producer drilling success in the third quarter of last year and exited the year at a production rate of nearly 2500 barrels per day from the Seal area. We're if the process of drilling 10 more horizontal producers in Q1, 2008, which are expected to contribute to production levels during the second quarter of this year. We are also drilling four more non producing stratographic test wells in Q1 '08.

During the second quarter of this year, we plan to start a cyclic steam test for which we have put in place fuel and water supply and water disposal infrastructure. As Derek will discuss in more detail in a few minutes, a general improvement in heavy oil pricing in Q1 '08 has resulted in our Lloyd area heavy oil wellhead prices currently reaching over $70 per barrel. Seal pricing has improved even more dramatically. Wellhead price for Seal is today well over $50 per barrel as compared to an average of $28 per barrel during 2007. Combining current Seal pricing with prepayout oil sands royalties, OpEx in the 5 to $6 per barrel range and F&Ds in a similar cost range per barrel, Seal provides one of the highest recycle ratios available in the industry today.

Finishing up on production, we are repeating our guidance of 37,000 to 38,000 BOE per day for 2008 as we expect production to be modestly curtailed by cool weather in Q1 and spring break up conditions in Q2. We're also repeating our E&D CapEx guidance of $150 million for 2008. Shifting to reserves, our 2007 year end proved plus probable reserves as evaluated by Sproule increased to $168 million BOE as compared to $145 million BOE at the end of 2006. This represents replacement of 274% of 2007 production, considering both acquisition and development activities and 123% replacement through development activities alone.

It's noteworthy that we achieved the 123% replacement by an E&D program that is equal to only 52% of cash flow. Our proved plus possible reserve life index increased from approximately 11.6 years at year end 2006, to 12.3 years at year end 2007. We continued to add these reserves at relatively low costs and relatively high recycle ratios. For 2007 our FD&A cost was $10.90 per proved plus probable BOE, excluding future development cost. Our three year average FD&A cost of $7.83 per BOE demonstrates a consistency of these low cost levels. When these FD&A costs are combined with our improving net backs, we're pleased to report a recycle ratio of 2.4 for 2007 and a three year average recycle of 3.4. I'll now turn the conference over to Derek to discuss our Q4 and full year 2007 financial highlights.

Thank you, Tony. We are very pleased to be able to report both a record quarterly cash flow of $98.7 million for Q4 and the accompanying record cash flow of $286 million. These results were driven by the increased production volumes discussed by Tony, combined with record oil prices. WTI averaged $90.68 for the fourth quarter, up a dramatic 20% from the Q3 average. Partially offsetting this improvement, heavy oil differentials widened out to average 36% in Q4, versus 29% in Q3. The seasonal weakening of heavy oil demand partially contributed to this increase but it was exacerbated by several short term outages and third party refining and transportation facilities during December. These issues have been rectified and differentials in Q1 of 2008 are expected to average below 25%.

Finally, North American natural gas pricing began to feel the effects of winter demand and our corporate sales price increased 9% over Q3, to average 631. Baytex is one of a very few oil and gas income trusts which has not reduced its distribution since the announcement of a trust tax back in October of 2006. Our Q4 payout ratio of 38% after drip and 46% before drip or 51% and 61% respectively for the year, are clear signs that our distribution is sustainable.

With ongoing turbulence in the credit market we are pleased to note that our operating results and conservative financial management have resulted in a position of financial strength. During Q4 we paid down our monetary net debt, that is net debt excluding future income taxes and unrealized hedging losses by $23 million to a year end balance of $444 million, or 1.3 times our annualized second half cash flow. At year end, we had approximately $120 million undrawn credit facilities available to us, providing us with ample financial liquidity.

Our U.S. dollar denominated debt -- our U.S. dollar denominated senior subordinated notes are not due until mid-2010 and as such we have the luxury of time as we wait for improved market conditions to consider refinancing alternatives for those notes. As pleased as we are to report the 2007 results, we believe that the most important message for today is the foreshadowing of our future cash flow capabilities. Our results over the second half of 2007 which include the contribution from the Pembina and Lindbergh properties acquired late in June resulted in both higher corporate production volumes and higher corporate netbacks.

Looking forward to 2008, with production volumes remaining strong, our product mix diverse, with WTI currently over $100, heavy oil pricing continuing its improvement and the back seemingly broken on low natural gas prices, our future cash flow generating capacity continues to look very positive. I'll now ask Ray to provide his concluding remarks.

Thank you, Derek and Tony. It is all this good news that you just heard that underpin our announcement today that we are increasing our monthly distributions to $0.20 per unit starting with our April 15, payment. Baytex is one of the most oil weighted producers in the Canadian industry, with approximately 78% of our BOEs per day weighted to oil price. Combining that with the lowest heavy oil differentials we have seen in a long time, we are very pleased to be in a position to share the benefit directly with our investors. With our capital budget set at $150 million this year, and based on current commodity prices, we are comfortable that our cash flow in 2008 should be sufficient to fully fund our capital program and our distributions at this increased level. So this short and sweet concluding comment, with that, I think we can open the floor for questions.

Thank you. (OPERATOR INSTRUCTIONS) One moment, please, for the first question. Our first question is from the line of Cameron Renkas, please go ahead.

Good afternoon. Tony, maybe this is more directed towards you. Just wanted to get a little bit of color on Pembina volumes perhaps in Q1. I know some of your industry competitors in the area have talked about maintenance issues in Q1 and lower volumes. Do you see any of that affecting Baytex and the Baytex properties?

Oh, I think in line with the results from the rest of the Company, there will be some modest reduction of volumes in Q1, some of it due to cold weather. But there aren't any significant outages that are going to occur for the rest of this quarter that we're aware of. So I wouldn't expect a significant reduction.

Just weather-related, perhaps?

Yes. A modest reduction in Q1 volumes. That would be true for heavy oil area and some of our other light oil and natural gas areas also.

Okay. And then secondly, also at Pembina, maybe you could just speak a bit to the capital plans and some of the drilling plans for this year? If you don't mind.

Yes, our capital level for Pembina this year, we spent about $10 million in the second half of 2007 after the acquisition. For 2008 we project 15 million to $20 million of capital spending, probably on the order of three to four net wells to be drilled.

Great. Okay. And lastly, maybe if you could just put a little bit more color in general on the pipeline inventory sales volumes in Q1. I know you spoke to a similar level of sales contribution from those sales. Would you be speaking to similar volumes, irrespective of price or are we just talking in dollar terms about the same amount?

They're relatively similar volumes but of course pricing is better. So I think we're expecting that the inventory sale in Q1 is in the neighborhood of 160,000 barrels. And that will still leave us with a little bit of line fill inventory at the end of the quarter.

Okay. Great. Thank you that's all for me.

(OPERATOR INSTRUCTIONS) One moment, please, for the next question. Our next question is from Roger Serin. Please go ahead, sir.

Good afternoon, gentlemen.

Hello, Roger.

I don't know if this is for Ray or maybe Tony. Could you give me a sense of how much you spent to date on your steam test and what you think you'll spend in 2008?

On the steam test at Seal, the cost of that test is around $3 million and we do have part of that spending in Q1 probably, oh, half of the spending in already for infrastructure and the rest will be to conduct the test.

Perfect. That's all I needed. Thanks.

(OPERATOR INSTRUCTIONS) One moment, please, for the next question. There are no further questions at this time.

Well, thank you. Appreciate your time in attending our conference call and we look forward to reporting to you our Q1 '08 results in May. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.