Baytex Energy Corp (BTE) 2015 Q2 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the Baytex Energy Corp. 2015 second-quarter results conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Brian Ector, Senior Vice President, Capital Markets and Public Affairs. Please go ahead, Mr. Ector.

Thank you, Anthony. Good morning, ladies and gentlemen, and thank you for joining us today to discuss the second quarter 2015 financial and operating results.

With me today are Jim Bowzer, our President and Chief Executive Officer; Rod Gray, our Chief Financial Officer; and Rick Ramsey, our Chief Operating Officer.

While listening, please keep in mind that some of our remarks will contain forward-looking statements within the meaning of applicable securities laws. I refer you to our advisories regarding forward-looking statements, oil and gas information, and non-GAAP financial measures contained in today's press release.

All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. And I would now like to turn the call over to Jim.

Thanks, Brian and good morning everyone. Welcome to our second-quarter conference call.

I think as everyone is aware these certainly are challenging times in the oil and gas industry with the drop in crude prices over the last few weeks. The industry continues to respond to the challenges of declining cash flows, capital allocation decisions and potentially increasing leverage.

I will get to our operational update in a couple of minutes, but before doing so I want to start today's call by addressing our shareholders.

I know this hasn't been easy for you over the past few weeks and it hasn't been easy for us. We are all shareholders at Baytex and I want to assure you that we will continue to manage our operations in the interest of creating long-term shareholder value.

One of our key attributes at Baytex is our portfolio of projects, with strong capital efficiencies and attractive rates of return, and these projects will serve us well as we move forward in a lower oil price environment.

I want to start by talking about our financial position because we have already taken many steps to maintain strong levels of financial liquidity. These steps have included reducing our capital spending and monthly dividend, negotiating cost savings with service providers, amending our financial covenants, extending the term of our bank line, and completing an equity financing.

Our balance sheet and liquidity were significantly enhanced during the second quarter as we raised CAD606 million in equity which was applied to reduce bank dept. In addition, there were no incremental borrowings during the second quarter to fund our capital or dividend programs.

Our credit facility consists of a CAD1 billion Canadian facility and a $200 million US facility, with a newly extended maturity date of June of 2019. These facilities do not require any mandatory principal repayments prior to maturity and can be further extended beyond June 2019 with the consent of the lenders.

As of June 30, 2015, we had approximately CAD1 billion in undrawn capacity on these facilities. In addition, we have CAD1.5 billion of long-term debt with no material repayments required until 2021.

Our total monetary debt at the end of the second quarter is CAD1.8 billion which results in a debt to EBITDA ratio of 1.7 times based on the trailing 12 month period.

As a reminder, our revised financial covenants now allow this ratio to reach a maximum of 4.7 times through mid-2016 and 4.5 times through December 2016.

So with that background about our solid financial position, I'll turn to the highlights for the quarter itself.

First on our operations, during the second quarter we continued to execute our 2015 capital program, as planned, and the results are consistent with the expectations we had. In response to the weakness in commodity prices, our overall level of capital spending was lower for the third consecutive quarter as we deferred activity in Canada and reduced activity in the Eagle Ford.

Reflective of our reduced activity, our production averaged 85,000 BOEs a day in the second quarter, as compared to 90,700 BOEs a day in the first quarter.

Capital expenditures for exploration and development activities totaled CAD106 million in the quarter, down from CAD147 million in the first quarter and also down from CAD215 million in the fourth quarter of 2014.

During the quarter, we participated in the drilling of 51 gross or 15.2 net wells. Our 2015 production guidance remains unchanged at 84,000 to 88,000 barrels a day with full-year capital spending of CAD500 million to CAD575 million. Our 2015 capital program remains flexible and allows for adjustments to second half spending.

Speaking to our Eagle Ford operations, production averaged 39,500 BOEs a day during the second quarter, compared to 41,000 BOEs a day during the first quarter and 38,000 BOEs a day during the fourth quarter of last year.

Capital expenditures totaled CAD98 million for the second quarter, which are down from CAD126 million in the first quarter and down from CAD150 million in the fourth quarter.

Reflective of our scaled back activity in the Eagle Ford, we reduced the number of drilling rigs on our lands from 12 in late 2014 to five currently. In addition, the number of frack crews has been reduced from three in 2014 to averaging between one and two currently.

Of the 40 gross wells that commenced production during the second quarter, 27 of those wells have been producing for more than 30 days and have established an average 30 day initial production rate of approximately 1,200 BOEs per day.

In addition to targeting the lower Eagle Ford formation, we are still actively delineating the Austin Chalk formation. The number of wells on our lands producing from the Austin Chalk is now 37, with an average 30 day initial producing rate of approximately 1,000 BOEs per day.

Additional advancements have been made to delineate the multi-zone development potential of our Sugarkane acreage. We have initiated stack and frack pilots which target up to three zones in the Eagle Ford formation in addition to the overlying Austin Chalk.

Recent production data from two pads which include the total of nine wells that targeted three zones achieved 30 day initial production rates per well ranging from 900 to 1,600 BOEs per day. We now have 11 multi-zone projects in various stages of execution and production.

In Canada, our assets continue to perform as expected with a limited capital investment. Production in Canada averaged just over 45,000 BOEs a day during the second quarter, as compared to 49,600 BOEs per day in the first quarter.

These reduced volumes in Canada are a result of lower drilling activity, the decommissioning of our Gemini SAGD pilot project, and uneconomic production that we have shut in.

As you may recall, our development activity in Canada includes limited spend in the first half of the year and a modest program in the second half of the year. As a result, capital expenditures for Canadian assets totaled approximately CAD8 million in the quarter, down from CAD21 million in the first quarter.

At Lloydminster, we have drilled two horizontal wells and at Peace River no drilling occurred during the quarter.

Corporately, we generated funds from operations of CAD158 million, or CAD0.77 per share and maintained a conservative payout ratio, net of our dividend reinvestment, of 24%. We generated an operating netback in the second quarter of CAD20.66 per BOE or CAD25.85 per BOE including hedging gains.

Our Canadian operations generated an operating netback of CAD16.48 per BOE, while the Eagle Ford generated an operating netback of CAD25.45 per BOE.

Our light oil and condensate production in the Eagle Ford is priced primarily off of Louisiana Light Sweet benchmark, which typically trades at a premium to WTI. This strong pricing, combined with low cash cost, contributed positively to our operating netback in the quarter.

With respect to our marketing efforts, our third-quarter 2015 crude oil hedge position amounts to approximately 24% of our net WTI exposure, with 17% fixed at approximately $80.00 per barrel.

The unrealized financial derivatives gain, with respect to our WTI hedges, at June 30, 2015 was approximately CAD46 million. As part of our hedging program, we also focus on opportunities to mitigate the volatility in heavy oil differentials by transporting crude oil to markets by rail when economics warrant. We have no fixed investment nor take-or-pay obligations to transport crude oil by rail.

The recent growth in rail infrastructure around our core heavy oil producing regions has allowed us to optimize deliveries by pipe and rail.

In the second quarter, approximately 18,000 barrels per day of our heavy volumes were delivered to market by rail. And for the third quarter 2015, we expect to deliver approximately 15,000 barrels per day of our heavy oil to market by rail.

In summary, given the low crude price environment, we remain focused on prudently managing our operations to maintain strong levels of financial liquidity. The execution of our capital program has yielded impressive results in the Eagle Ford as we advance the multi-zone development potential of our acreage. And in Canada, our assets continue to perform as expected with the limited program for 2015.

Through negotiated cost savings with service providers, our portfolio of development opportunities in the Eagle Ford, Peace River and Lloydminster continue to provide attractive returns.

And with that, I will conclude my formal remarks and ask the operator to please open the call for questions.

(Operator Instructions) Nima Billou, Veritas Research.

Just wanted to get a sense of the breakdown in production for your Eagle Ford wells in terms of condensate, NGL and gas for the most recent wells.

Our breakdown is about, on average, 70% liquids or so, with about 20% of that volume being NGLs. The condensate and crude oil, we're right across the window that is in between retrograde condensate to volatile oil as we drill these wells. So, it's pretty difficult to separate out what is crude from condensate and the remainder is gas.

Thank you. And what are the EURs like on these wells?

They vary and we haven't really quoted EURs, Nima. But they vary from area to area, across the field and across the liquids window that we have.

Okay, thank you. And just wanted to get a sense, are you seeing any further, there were no changes in terms of the cost per well for Eagle Ford, I know just, over the most recent presentation. Do you see any opportunity for further savings down the road? Is it just a matter of time or have you hit the bottom in terms of squeezing further cost on the CapEx per well?

As you know, we were AFE-ing these wells and spending about $8.2 million per well. That number that we had targeted was for the second quarter, was getting down to around $6.9 million per well. I don't think we've seen the bottom yet in terms of what that could be. We're hopeful that the drilling times and cost will continue to improve as we go through.

Okay. Just wanted to get one sort of housekeeping question, would you be able to provide the breakdown for Peace River and Lloydminster production for the second quarter of 2014?

Yes, we're getting that. For Q2, Peace River was about, a little over 22,000 barrels a day. And almost 16,000 barrels a day for Lloyd in the second quarter.

Is that second-quarter 2014?

2015.

Oh, yes? No, I was looking, were you able to provide the number for the prior year quarter?

Why don't you call Brian after the call and he'll get you the breakdown for previous quarters if you're interested in that.

Great, thank you. Final question, just one question on Eagle Ford and one question on the rest of Canada. You mentioned the Canadian declines -- and there wasn't much spend on E&D -- were roughly 21%, is that indicative of the broad decline rate for those properties?

If you go back, we have quoted upwards of 30%, 28% to 30% declines that would be a base decline. If you actually calculate quarter-on-quarter, it was around a 26%, if you annualize the decline that we saw. And it's a pretty good number because we had very, very little activity there.

You do need to adjust for the shut-ins that we had during the quarter. But when you make those adjustments, we're probably in the 25% to 26% decline range that we saw. So, it's a good 2% to 3%, maybe even if you stretched it, potentially 4% lower. So, we're very pleased with that.

And the base decline, do you have a figure for that on the Eagle Ford wells?

Overall, we've got about a, the corporate decline we would have quoted, across all of Baytex, so I said about 28% to 34% is what we used to quote on kind of the heavy oil.

When you mix that with the Eagle Ford in the mid-40%s on an average for the base production plus the new wells, we were kind of at a 35% decline rate. And I think all of those numbers will be coming down, partly because the base business certainly seems to be performing better than we had expected from a decline rate and secondly, we're not bringing on nearly as many high decline wells in any of our plays.

The initial wells certainly have, on year one of production, a higher decline rate. So, there's less of that that's occurring. So, we should see those continue to moderate.

Great. Thank you very much, appreciate it.

Thank you. There are no further questions registered at this time. I'd like to turn it over to the panel for closing remarks.

Thank you, operator and thanks everyone for participating today in our second-quarter conference call. Have a great day.

Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.