Baytex Energy Corp (BTE) 2024 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp first quarter 2024 financial and operating results conference call. (Operator Instructions)

I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets, Investor Relations. Please go ahead, sir.

Thank you, and good morning, ladies and gentlemen, and thank you for joining us to discuss our first quarter 2024 financial and operating results. Today, I am joined by Eric Greager, President and Chief Executive Officer; Chad Kalmakoff, our Chief Financial Officer; and Chad Lundberg, 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 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 unless otherwise specified and following our prepared remarks , we will be taking questions from the analysts.

In addition, if you are listening in today via the webcast, you will have the opportunity to submit an online question and we will do our best to answer all questions submitted. With that, I would now like to turn the call over to Eric.

Thanks, Brian. Good morning, everyone, and welcome to our first quarter 2024 conference call. In the first quarter, we safely and efficiently executed the largest exploration and development program in company history and delivered operating and financial results consistent with our full year guidance. We're off to a strong start in 2024 and expect to deliver substantial free cash flow and meaningful shareholder returns over the next three quarters.

We increased production per share by 15% in Q1 2024 compared to Q1 2023, with production averaging more than 150,600 BOE per day 84% oil and NGLs. We drilled 83 net wells with 13 rigs running at the peak of the quarter and E&D expenditures totaling $413 million, one-third of our guided full year expenditures.

Our 2024 guidance remains unchanged with the expenditure of $1.2 billion to $1.3 billion and production of 150,000 to 156,000 BOE per day. Based on the forward strip, we expect to generate approximately $700 million of free cash flow in 2024. Our strong free cash flow profile reflects the efficiency of our E&D program, higher forecast production volumes for the remainder of the year and improved crude oil realizations in Canada and Eagle Ford.

In Canada, we are benefiting from the completion of the Trans Mountain Pipeline expansion and increased oil export capacity, which is contributing to narrowing basis differentials out of Western Canada. In Eagle Ford, we benefit from our exposure of premium US Gulf Coast pricing for our light oil and condensate production. We intend to allocate 50% of free cash flow to the balance sheet and 50% to direct shareholder returns, which includes a combination of share buybacks and quarterly dividend.

I'd like to now turn the call over to Chad Kalmakoff to discuss our financial results.

Thanks Eric. In Q1, adjusted funds flow per share was $424 million or 52% per basic share, which was a 21% increase compared to Q1 last year. The first quarter is our highest capital spend quarter of the year, which sets the stage for strong free cash flow and increased shareholder returns for the balance of the year. Our current normal course issuer bid allows us to purchase up to $68.4 million common shares during the 12 month period ending June 28, 2024.

As of May 7, we have repurchased $46.7 million common shares for $253 million at an average price of five 42 per share, representing 5.4% of our total shares outstanding. Our total debt at March 31, 2024 was $2.5 billion, largely unchanged from year end due to our large Q1 capital program and the impact of the weakening Canadian dollar on our US dollar denominated debt.

As I stated, our Q1 capital program has set the stage for a strong free cash flow profile for the through the balance of the year, a significant portion of that free cash flow will go to debt reduction in addition, we're actively managing our debt maturities to ensure ample liquidity and flexibility to execute our business plan. While our overall debt position has reduced with this in mind, subsequent quarter to quarter end, we undertook two significant transactions.

Firstly, on April first, we closed a private placement of US $575 million, aggregate principal amount of senior unsecured notes with an eight year term. We are very pleased with the market support for this offering. The notes bear interest at 73% per year and mature on March 15, 2032. Net proceeds from the offering were used to redeem the remaining $410 million, 8.75% notes due April 1, 2027 and repaid a portion of our credit facility.

Secondly, we extend the maturity of our credit facility by two years to May 9, 2028. Again, we had great support from our syndicate and I was pleased that we could complete the extension of our US. $1.1 billion credit facility.

Three findings over the refinancing of our notes to 2032 an extension of our credit facilities out to 2028 puts us in a great position with respect to our maturity schedule. We have ample liquidity and flexibility to execute our business plans while reducing debt and providing shareholder returns.

Turning to risk management, we employ a disciplined commodity hedging program to mitigate the volatility in revenue due to changes in commodity prices for the balance of 2024, we have hedged approximately 40% of our net crude oil exposure, utilizing two-way collars with an average floorplan floor price of $60 per barrel and an average ceiling price of $96 per barrel.

For the first half of 2025, we have hedged approximately 20% of our net crude oil exposure, utilizing two-way collars with an average floor price of $60 and an average ceiling price of $91 a barrel.

Now I will turn the call over to Chad Lundberg to discuss the results of our first quarter capital program.

Well, thanks, Chad. I'm now pleased to speak to our Q1 operation and highlights the significant efforts of our team. In the Eagle Ford, we continue to deliver strong results across the black oil, palm oil and condensate thermal maturity windows. In the first quarter, we brought 19 wells on stream, including 15 Lower Eagle Ford wells, three Upper Eagle Ford well and one re-frac.

When we compare our operated Eagle Ford performance to date as of over 560 will source from public data our performance over the last nine months ranked in the top quartile on a production per lateral foot basis. We are at the top of the second quarter. I'm very pleased with our results, and I'm confident there's more to come. We remain focused on optimizing our acreage and our systems.

Our 2024 program includes four of the Eagle Ford wells, three of which were brought onstream during the first quarter and are still ramping. We also completed a refrac Intermet unit that is expected to generate an internal rate of return of over 100% . Additional refrac opportunities have been identified and supplement our capital program. For 2024, we are targeting an 8% improvement in our operated drilling and completions cost per completed lateral foot over 2023.

In our Canadian light oil business unit, we completed our 2024 drilling program in the end of the Duvernay and executed another successful winter drilling program in the Viking, we were pleased with the efficiency of our two pad seven well drilling program in our Duvernay, which saw a 21% improvement in drilling days measured from spud to rig release and a 10% improvement in drilling costs compared to 2023 fracture stimulation of a three well pad commenced in April and a four-well pad is expected to commence in June.

In our conventional heavy oil business unit P volumes continued to outperform expectations, and we followed up early exploration success with development in more Morrisville and the greater Cold Lake area at the mine. We brought 12 wells onstream here during Q1 2024 an initial well performance exceeded type curve expectation for Novogratz for multilateral horizontal wells on stream and targeted direct formation, a Clearwater equipment in the greater Cold Lake area. We recently brought five seater or low multilateral wells onstream. I'm very pleased with our first quarter development program, which delivered strong results across the portfolio.

And with that, I will turn the call back to Eric for his closing remarks.

Thanks, Chad. I want to take a moment to thank our operating teams. As many recall, we started the year with some really challenging conditions, extreme cold across North America, followed by heavy rainfall in Texas the teams did a great job. They maintain safe and efficient operations delivered on the quarter and delivered the largest Q1 capital program in company history setting setting us up well for the rest of the year.

I want to highlight the expansion of our land base in the Pembina Duvernay. During the first quarter, we successfully acquired approximately 31 net sections of high-quality Duvernay lands on the southern flank of our existing acreage. This brings our core Pembina Duvernay acreage to 142 net sections, providing us with significant inventory and growth potential in what is becoming a very interesting part of the Duvernay.

We believe the resource associated with the newly acquired lands as a very high-quality land will immediately compete for capital in our portfolio. As I mentioned at the outset, we are building momentum and expect to generate substantial free cash flow and direct shareholder returns.

This year, we are committed to a disciplined returns-based capital allocation philosophy aimed at driving increased per-share growth and returns. Our Board has declared a Q2 cash dividend of two and a quarter cents per share to be paid on July 2, 2024.

And now we are ready to open the call for questions.

Thank you. (Operator Instructions)

Menno Hulshof, TD. Colin, please go ahead.

Thanks, and good morning, everyone. I'll just start with a question on the re-frac program, where your rates still look to be to be pretty strong. Can you just speak to the overall economics of that program, including all-in costs? And is it possible that we see or current refrac inventory of 300 does increase over time ? Thank you.

Hi, Menno. It's Eric. Thanks for the question. Good to talk to you this morning. And the economics are strong. So the rates remained strong. Pressure remained strong all the indications that one would look to to give early indications of reservoir performance of stimulated reservoir volume and what might endure over time, all feel very strong to us and with a re-frac, you're going to apply all the same. Things are the same diagnostic techniques to forecast as you would with an ordinary well. So that all feels pretty good We do anticipate that we're going to be able to continue this program moving forward.

Candidate selection is very important, as you know, because you what you don't want to do is you don't want to build a re-frac campaign that begins to interfere with the balance of the program. So it has to be complementary supplementary, but the economics are very strong IRRs in excess of 100% and all of the diagnostics on the Medina well continue to look very strong. So we're encouraged by this and encouraged by the validation of the candidate selection criteria as well. So we do believe we're going to be able to over time and at a measured pace.

Add this this up kind of supplemental capital and production program at incrementally better capital efficiencies over time. Let me just pause there and now you can follow up, please.

Sure that no, that was great Eric. Maybe I'll just follow up with a question on future upside. Do you look to be working a number of different areas here in Canada, especially on the heavy side of things, which have these emerging plays are you currently most excited about?

Well, pipeline certainly continues to exceed our expectations and the fact that we're in Q1 having meaningfully exceeded the high end of our guidance range at the high end of our collar that we had previously put out and maintained gives us a lot of confidence. We will continue to reiterate this kind of 15,000 BOE a day target for PeaVine. And then I think to the extent we exceed performance, that will be a pleasant surprise.

And the reason for that is just because the reason we've outperforming P Vine relative to the 15,000 is on surprising outperformance in the reservoir. And so to the extent that continues to happen and they'll be they'll be pleasant surprises and upside performance, but we will stick with the 15,000 BOE a day as our as our kind of go-forward plan. Otherwise, I would expect 2024 to continue to run a little bit above that.

And so Peavine is, is one we're really excited about, of course, the Clearwater equivalent, the racks at more infill just north of Edmonton. It is an area. We've put several full length development, multilateral horizontals, and it continues to perform very well and we're very excited about that and that was Sika up in the greater Cold Lake area also continues to outperform our expectations.

And so we continue to delineate those plays and we continue to be excited about what we learn as we delineate find the extents and understand the quality and performance criteria of the reservoir itself. And of course, in the north and west quadrant of our Peace River area, we did acquire some opportunities. These would be in the blue sky. It's very early, but we call this play Grizzly, and it shows up in our heavy oil portion on slide 21.

And we're pretty excited about that as well. But again, it's very early. So it's not as far along as the REX at more infill or that was Sika integrator, Cold Lake area. But all three of these are developing nicely and the team is continuing to put to work two geoscience teams across our heavy oil fairway and continuing to find opportunities on lands. We already own and create opportunities where we can extend our land position commercially.

Thanks, Eric. I'll turn it back.

Amir Arif, ATB Capital Markets.

And Thanks, Erica. And a few quick questions for you. Just on that Medina refrac, can you just quantify the actual work or the cost of the completion? And I think you did provide a rate of 700 barrels a day, but just curious where it was prior to the frac ?

Yes. So Amir, you broke up just a little bit. I think you asked on the capital on the re-frac and the rate, is that right?

The incremental rate. Yes, to the 700 ?

Okay. So that well, had declined to the point where it was, why don't I'm going to say less than 50 barrels a day BOE a day and so the incremental as it as we put it on production after the refrac was in excess of 700 BOE a day. So incrementally, it's 650 plus BOE a day.

And again, the reservoir pressure indications, ISIP.s, treating pressure and other diagnostic tools that we have used pressure dependent rates and the like have all indicated that we have such substantial or created substantial new reservoir fracture surface area. So we think at a discounted price, we've basically completed a new almost 5,000 foot lateral and we did. So I think it was about Chad Lundberg $4 million ? Or was that Canadian ?

US.

Okay. Amir, I think that that rounds out the question.

Yes, perfect. And just on the PVI and just a follow-up question to your comments that you made there, the better production is due to the better wells. What's the limitation in terms of being able to grow that further? Is it just is the surface constraints or is it just how much capital you're allocating in terms of your target number of 15,000 barrels a day?

Yes. So the the 50,000 sorry, one five, 15,000 barrels a day is on output, not an input. So that is the consequence of all of the other decisions we've made. What is actually the constraint is, you know, our relationship with the PVMAT. and in particular, over the years, it's been a this has been a four, five, six year relationship in the making.

And we believe engagements and then respectful engagement and doing what you said you were going to do in terms of managing the relationships with the communities in which we operate is a is a key principle and one of the key principles during the negotiation was of our pursuit to understand how much development and at what pace the community would tolerate.

And we've understood that we've continued to engage to reiterate that and it's the pace of development today that we have to kind of level loaded our program out our the dictates the current production rate. So is really constrained not by the quality of the reservoir or by capital, but rather by our license to operate within the community and our respect for the community relationship.

Okay. That makes sense and then just shifting over to the Duvernay. I know you've got some new wells that you're completing that is just too large addition of acreage relative to before you get some additional well results. Just curious if you can add some color in terms of is that a different part of the Duvernay or is it the same trend or you're comfortable enough adding to that position ahead of the well results that you're completing ?

Yes, we're actually we're actually very excited about about the quality of the resource associated with these almost 31 net sections we've added on you probably know this, but for the benefit of the entire audience, there were there was substantially more acreage posted in the Crown auction than what we bought. So we were very surgical and intentional about going after the acreage that we wanted.

We got the acreage we wanted all of the acreage we wanted, and we're really excited about the quality of the resource associated with it. So we'll continue to step up in our 5-year plan, our capital allocation and the pace of development. So next year, we had this year to seven well program, a four-well pad and the three well pad in our Duvernay and next year, it's entirely reasonable to expect it to be somewhere north of 7 perhaps 9 or ten.

And I think that's I think that's very reasonable because this is really high-quality acreage and it's on trend in the same thermal maturation windows and very close to geographically very close to our existing position. So we think we've got acreage in the best part of the Pembina Duvernay. We like the reservoir quality we're in. We like the thermal maturation we're in and we like the liquids mix and continue to make progress on unlocking the secrets of the reservoir, which will include our new 31 net sections.

Okay. Perfect. And then just one final question. Just on the hedge book. You've already got a great hedge book for this year, 40% hedged, 60 floors, 90 hundred ceilings. Just as your net debt comes down. Can you give us a sense of what you're thinking about your hedging philosophy going forward ?

Yes beyond 2024, because you guys you point out '24 is pretty well done. We like the shape in character and 2025 and beyond. It will continue to follow our net and total debt down. And so 40% was kind of predicated on 1.1 times, 1.2 times our total debt to EBITDA leverage ratio and as that comes down under one we'll continue to reduce to 40% down linearly, really not and not a big staggered steps, but essentially linearly by quarter and in conjunction with the leverage ratio as it comes down.

So 0.9 times might might be closer to 30% , 0.8 times might be closer to 20% of net crude exposure and so on, as it comes down, and we'll just follow that our leverage ratio out in time as the debt comes down. So will the need for our hedge book engaged at the same level?

Appreciate the color. Thanks.

Thank you Amir.

This concludes the question and answer session from the phone lines. I would like to turn the conference back over to Brian Ector for any questions received online. Please go ahead.

All right. Thank you. And we do have a number of inbound questions coming in on the webcast. So I'm going to summarize a few of them and ask members of the team to address each of the inbound questions. There are a number of themes evolving from the questions that are coming in. Most relate to a discussion around capital allocation in our portfolio.

So three components, debt, share buybacks and our NCIB program and dividends. And so I want to turn the questions over first to check how McCall and I'm going to summarize is that we talked about having a strong financial position with our debt really didn't come down in the first quarter. Can you speak, Chad, to our quarter end debt levels and expectations for the balance of the year.

Sure, thanks, Brian. Thanks for the question. Good question. I think as you referenced, our strong financial position, it's good to know that we're speaking to more than just our leverage ratio, truly the things we look at our like our financial liquidity, our long term debt maturity profile, which is I think is as strong as it's ever been in the last 10 years.

So looking at our two series of outstanding notes, we have one turned out to 2031 turned out to 2032, I think gives us a strong endorsement from our fixed income investors regarding the depth and quality of our inventory in our most recent issue7.38 notes, the $575 billion. The demand for the issue was very strong, which was five times oversubscribed. And again, as we mentioned before, we've turned out our credit facilities as well to 2028. So that maturity profile is one of the things we referenced.

We think we have a strong financial position. We also I guess I wouldn't be I'd be remiss to say that we do recognize our leverage ratio was higher than we wanted to be. So our debt to EBITDA ratio of 1.1 times above some of our peers, particularly in that 0.5 to 1 times ratio. I think we just acknowledged that we realized this debt repayment is a priority for us .

50% of our free cash flow for the balance of the year will be directed to our balance sheet. And with that, we do expect to reduce our overall debt by just over 10% this year. I think lastly, when you look at the quarter, I think a couple of things. We talked about one large capital program. Q1 would have impacted that.

Secondly, maybe not as obvious, we talked about our notes. Those are all US dollar denominated notes. So at a year end, FX rates would have been about 1.32 they've moved to 1.35. So that $0.03 move increased our debt at quarter end by approximately $50 million.

Then when you express it in Canadian dollars, correct?

As a Canadian reporting issuer. Now that being said, obviously that impact our debt levels as a weaker Canadian dollar has actually net beneficial to our business. Obviously, the value of our US. business in total, kind of large increase would be with the relative weakening of the Canadian dollar.

And lastly, there just mentioned, we do have that we did have a $35 million land purchase in the new and a high perspective, something we're pretty excited about. So those with a large contributing factors to the non debt reduction, I'll just conclude by saying we realized investment looking for some debt reduction. As are we we are committed to debt reduction and we are confident we'll reach our debt targets.

Thank you. Thank you, Chad, and keeping all the line of repeat this question acumen as well. We've touched on the debt, it debt repayment plan, and I'll turn it over to Eric for a bit broader conversation on capital allocation and what our priorities are, debt repayment, shareholder returns, the buyback program versus the dividend?

Yes. So let me unpack that. Our priorities remain 50% of our free cash flow allocated to debt repayment as Chad Campbell cost just took us through and the other 50% to direct shareholder returns and the direct shareholder returns our bias in terms of the size of that 50% allocated to our normal course issuer bid in the last three quarters, we've taken out 5.5% of our total shares outstanding, and that will continue.

And then, of course, the other part of that direct shareholder return portion of the allocation is our fixed base dividend on that fixed base dividend, of course, is currently set at $0.09 per share per year or two and a quarter cents per quarter per share, and that remains part of the 50%. So I guess what I would say simply is it's 50 50 and you could ask 100 shareholders their priorities and you could get something like 50 different answers.

Some people like more dividends, some people like more share repurchases and others like 100% to debt. And because on we look at it over overtime and on a balanced and reinforced framework that doesn't kind of whipsaw quarter to quarter. We like this 50-50 allocation, we think threads the needle between pleasing the broadest possible cross-section of shareholders. So let me just stop there, Brian,

And then continue on the question around the dividend. Eric, are there any conditions where shareholders could expect to see a dividend increase? And would we ever consider special dividends of some other companies have put in place?

Yes. So special dividends are real challenging for issuers, particularly if they're kind of special one-time dividends, we take no surprises essentially and they're great for shareholders, but it's very difficult for the issuer to get value embedded in the stock because nobody knows how to how to discount the probability when that will happen. And how big it will happen though, variable dividends are a different construct around special special variable dividends. And if you have a very rigorous formulaic approach to how you go about quantifying the forward variable dividends. That's something I've seen done and I think that can get priced into the stock.

I would say the third thing is on raising the dividend is one of the reasons we started with a modest fixed base dividend currently yielding, let's call it, 1.8% was to give us the opportunity over time to increased the dividend on a per share basis and hopefully on a yield basis consistently over time.

Now we haven't so far because we've only been at this now for three quarters, but it is certainly our desire to over the long arc of time create a track record of raising our fixed base dividend and our dividend yield over time. As part of our total shareholder returns framework.

Now the last part, I'll say on this, it's not specifically around dividends or the dividend question, but when we take 50% of our free cash flow and we allocate it to reducing our debt on even though that's not part of our direct shareholder return framework. And it's still meaningfully impactful to share price appreciation because if you assume for the moment that of all things equal, the enterprise value of the business stays the same over time that every dollar of debt you reduce becomes $1 of equity increased in the business.

And so this is something we recognized. So essentially the full $700 million of free cash flow generated this year. Our goal is to direct shareholder returns that 50%, NCIB. and dividends. But indirectly, as we pay down debt goes to share price appreciation because it moves from on the debt side of your EV to the equity side of your EV.

I mean, this is where we really think there's some substantial acceleration or compounding of the benefits. If we buy back 7%or 8% of our total shares outstanding each year. And we add to that 7%or 8%, a 2% fixed base dividend and then we add to that 2% top line production growth that's a 12% total shareholder return on the sum of those three parts. And then when you add to it on the additional 50% allocation to debt, that kind of puts goose an acceleration in that it's meaningfully north of the 12% TSR. So I that's a fairly fulsome discussion, I think around shareholder return framework

Thanks Eric and back to Chad Kalmakoff. Just really quickly check, can you during the quarter we had a press release around seeking exemptive relief for normal course issuer bid. And can you just explain the plan? Like what does that relate to?

Sure. Thanks, Brian. That exemptive relief is really to allow us to buy additional shares directly from the NYSE versus the TSX. So really just kind of directing some of our NTID, our US shareholders versus the Canadian shareholders. We need to really to do that. Generally speaking, we buy both exchanges, but we have been a little bit more directly to the US exchange, probably to ensure that we maintain a foreign private issuer status.

Thanks Chad. As we've touched on the debt repayment plan, normal course issuer bid the dividends. Eric, one more question, and this relates to other uses of the free cash flow and capital that release to production growth. So how do you think about balancing current production and cash flow goals versus incremental spending to generate production growth? And what are the trade-offs as you think about the company's future?

Yes. Thanks, Brian. It's a great question on those. Those of you who've indulged in our IR deck, online know that we've got a 1% to 4% range over the five year plan. Our LRP, and we talk often about 2% per year, just this just handy shorthand for the midpoint of that growth range in terms of top line production growth per year and the 2% essentially is meant to be just north of flat such that and you can with some certainty ensure that you don't create back-to-back sequential quarters of negative growth. Right ?

So because that has negative optics around sequential negative production growth. What you'd like to do is if you have a quarter that goes down relative to the subsequent quarter, you'd like it to be only one quarter and not are not apparent quarters, 2% generally does that if you use a shorthand math and given the seasonality of our business and where we operate. And so we think that's just right.

Otherwise, you could just say just barely north of flat and what does just barely north of flat production mean in terms of maintenance capital, it means you're maximizing your free cash flow generation and that that is our commitment.

Our commitment is to allocate our capital to the highest returning projects and maintain the maximum operational efficiency in each part of our portfolio while not growing any faster than necessary so that we can maximize free cash flow generation and allocate that free cash flow to debt reduction, share repurchases and our dividend.

Okay thanks Eric. A couple of questions have come in around the production volumes we reported during Q1, Eric, to explain maybe the difference between what we realized in Q1 from a production standpoint relative to Q4 and how that sets us up for the year?

Yes. Thanks, Brian. So Q4 was strong. So above the high end of our of our guidance range at the exit and on on less capital in Q4 than we anticipated. So that was a very strong kind of operational outcome for Q4 the thing that's important to keep in mind is the 151 I'll call it for Q1 was also well within our outlined full year guidance plan.

So 150 to 1 56 was our was our plan, our guidance plan and the 151 or 150.6. It is what we expected in line with our expectations. Now the difference between the 160 and 151, it's important to understand there was 4,000 BOE a day in the Viking, 100% oil sold and the proceeds from that were put to debt in Q4.

And so that accounts for 4,000 of the 9,000, the other part of that drop between 160 and one 51 is really related to seasonality and in particular related to on our Marathon non-op activity in our non-op Eagle Ford, the Karnes Trough, Eagleford up Marathon had been working very diligently throughout the year and in particular throughout the summers, Q2 and Q3.

But by the end of Q3, essentially spent the capital they had allocated to the project and so in all of Q4, there was no stimulation, no wells turned to sales. And so naturally, between Q3 and Q1, all the production, particularly the newest production with the highest pressures released in late Q3 declined off into Q1. So that is the other part of the gap. But none of this comes as a surprise, Brian, and you know, this. This was all within our guidance range. And we continue to reiterate not only our 150 to 1 56 guidance range, but also the continued growth throughout the quarters.

So let me let me stop there.

Thanks Eric. Okay. I want to shift. We've had a number of inbound questions on the webcast relating to our operations. I'll start with Chad lumber as an opening question, Chad, how many wells are planned to be drilled in 2024?

Thanks, Brian. So you have total quantum of wells drilled this year will be 250. If you reference the investor pack online on page 7 of the slide deck, roughly 60 of those are being allocated in the United States and you've heard properties both on and off and operator faces.

A hundred of those are in the Canadian side, our logo business and then approximately 90 would be the balance of the two 50 through our heavy property.

The other thing I would note is just the efficiencies we're seeing as we level either Eagle Ford and I think about the big machine that we call our assets today is the efficiency, and you see it in the press release, we saw 21% improvement on drill day to the Duvernay that translated in fluids due to 10% cost increase. We're seeing that in the United States with 8% reduction in. You've heard cost largely synergistic with each other, and we're just excited to be able to share across both sides of the border as we think about improving.

And Chad, just an investor asking us to convert confirm our 2024 plans at peak volume, the well count, I believe we're looking at for a total of 35 wells this year.

Yes. I mean, Devine has been a tremendous story, obviously, for those who have followed us since we started it back in 2021 with our first exploration and discovery well, this year, we've ramped to a two rig steady pace program that that would be approximately 35 wells.

So all of those are down in Q1. We're looking at an option to them. You'll maybe drop that back to one rig and attempt to drill through breakup here, it would still achieve close to the same well count to 35. But we're excited again about the efficiency that we can drive out of the program by just really continuing to think about operating this equipment on it on a very steady basis and the crews equipment efficiencies we can drive out of that.

And Chad, with recent flooding around the Texas area last week, any of our production affected?

No, this is short answer is nothing concrete or nothing is effective, but we definitely heavy rains in the greater Houston area. I think you know, when I think about that production team, they're very good at managing and operating, obviously in their local and acute conditions, no different than in Canada in our coal conditions that permeate themselves through the Q1 time period. But no have no flooding effects plus three.

And maybe a question back to you, Eric. Operationally, production levels that. Could we talk about heavy oil plays? You mentioned earlier referred to the Rex that what he could Grizzly, even the Duvernay, what production levels could be expected in these heavy oil plays as we move forward.

Yes. So these are on in terms of moving the needle on a base of 153,000 BOE a day at the midpoint of our range. They're not going to be that meaningful. But having said that, the well performance really really is quite strong and the economics are really incredible because these generally speaking, these multilaterals in high-quality competent reservoir don't require liners.

They don't require cementing. They don't require any stimulation. These are just long open-hole multilaterals tied into a single well. And so the capital is on very modest, I mean compared to unconventional Duvernay and Eagleford, for example. And so a couple of hundred barrels a day out of each well. And we've got four wells on in more infill.

And I think we've got five wells on in the new we'll seek a play at that greater Cold Lake. And both of those are in excess of 1,000 barrels a day today on and they're very flat. Declines are flatter in Waseca than in more And Bill, because the more indoor reservoirs, a little higher pressure and when you have higher pressure, you generally have higher early decline rates.

But nevertheless, both of those will grow to a few thousand barrels a day each and on the basis of 153,000 BOE. a day and growing, it's modest. But again, these things are so accretive in terms of economics and NAP creation of that they're very, very attractive to us. And we will continue to deploy our geoscience teams and our intellectual property across our large heavy Bay to find these where they where they are.

A two-part question on the Duvernay for you. Any ability to acquire additional lands beyond the Crown land purchase from Q1? And part two, what level of production in wells could you or could we see from the Duvernay and what type of growth profile?

Yes. So on there, there's always more you can buy, and we're very intentional about where we spend the money. It's got to be as good as what we've got already or better. And of course, the 31 net section acquisition we made in Q1 in the Duvernay met that criteria and is immediately executable. And that's the other thing.

You don't necessarily want to find yourself in a position where you've bought high-quality resource that you can't execute on quickly. And so next year because we've already finished the drilling casing and cementing of our 2024 program next year, we'll actually be deploying capital against not only our existing Pembina Duvernay position, but our new extension to better understand it continue to inform our technical models and and bring obviously value forward on that land acquisition.

And now in terms of how fast we can grow it. We've steadily ramped activity in our Pembina Duvernay, two wells per year, four wells per year, six wells per year last year, seven wells per year this year, we're expecting north of seven next year. I'm going to say nine or 10 if we're just kind of broad-brush strokes here, but it will certainly be seven to 10 it will be more than what we've done this year, and we're going to continue growing that.

Our LRP contemplates a max of 12 wells per year, but that was before new acquisition. And so we think we'll be north of that as well. And we think this as we continue to ramp this and on good results, potentially accelerate because the capital efficiency is very strong and accretive to our portfolio. We would we would grow this thing to we think north of 20,000 BOE a day and over perhaps a 5-year period, perhaps a year or two longer.

Some of this is still in the works in our current LRP, but it's a meaningful addition. In fact, with most of the rest of our portfolio running flat. And this is where our growth engine is, and we're very excited about that. It's high-quality, contiguous position with lots of control, and we're excited about the opportunity to continue deploying capital there, growing the asset and doing so at incrementally accretive capital efficiencies, which will improve our overall business over time.

At a high level, Eric acquisitions and dispositions, what are we thinking about as it relates to that, what areas would you consider core? And maybe part of that, given the diversity of the asset base, would we consider pursuing asset sales ?

Yes. So we sold a portion of the Viking last year. It's a good place to start in this answer because we call those assets for GAN and Plato. And it was 4,000 BOE a day and we got $160 million out of that. Now the challenge was and the reason those those assets were carved out of the portfolio is because they could not compete for capital within our portfolio. And so given that fact, we were left with two choices.

We were left with deploying capital against assets that didn't compete in the portfolio and that capital then, of course, punches below its weight because you've taken it away from a from an allocation to a higher performing assets. So that's dilutive to your performance or you don't allocate capital. And we know that fracture stimulated reservoirs over time like Gorgon and Plato and Viking, our starved of capital would decline to no value over a couple of years.

And so you don't want to starve an asset of capital and allow it to decline to no value. And you also don't want to allocate capital to something that doesn't compete. And so you're left with if it's worth more to the outside world than it is in our portfolio, we should sell it. And so we set a retention value on that basis and the the proceeds were clearly worth more than it was inside our portfolio.

So we sold it. We think that's disciplined portfolio management and we revisit our portfolio every single quarter because market conditions, change differentials, change quality and performance, quality pricing and so on changes. So we will revisit that frequently and continue to reallocate our capital to the highest returning of portions of our business within our portfolio. If something doesn't compete, then it gets it gets considered for disposition right now.

Everything in our portfolio is funded and competes for capital, but should that change and we will we will run a disciplined discounted cash flow analysis and we'll set a retention value and we will test the market. And if it's worth more on the open market than it is within our portfolio, we'll sell it and we think that's disciplined. We think that's the right economic basis upon which to sell assets and the proceeds of any sale would be applied today to our debt.

Thanks Eric. Let's revisit really quickly our free cash flow profile for the year. Q1 free cash flow was zero. We've talked about that. We say full year free cash flow at the current strip is $700 million. Why the disconnect between Q1 and the balance of the year, Eric, and maybe a second part of that, is there any reduction in E&D spending to improve the free cash flow profile ?

Well as it's a great question on. We talked earlier about the 2% top line production growth year over year as being set on essentially as close to flat as as we feel comfortable because of that, that's the seasonality of our assets in our portfolio require us to be a little north of flat to avoid things that we think wouldn't be very constructive.

So we like 2% per year top line production growth. And if we reduce E&D capital further, of course, that would have a lagging knock on production impact. And these are all very profitable investments. So everything we're investing in, you have IRRs that are that are substantially north of our threshold proteins that are substantially north of our thresholds and are all very economic and so these are economic investments and we've set the E&D capital to be as low as it can be, which corollary to that essentially suggests that we're maximizing free cash flow generation.

The reason there was zero free cash flow in Q1 is because the size of the capital program in Q1 essentially took all the operating cash flow and committed it to CapEx, leaving nothing and for free cash flow. And the reason we did that in Q1 is because we need to get a strong start to the year because we don't always know how breakup is going to treat us, like what is what is going to happen during breakup in Canada.

So we always start very strong on our drilling and completions program to set ourselves up for optionality, depending on whatever happens with breakup. And then if we have that we have good options through breakup, we can then levelize our program and levelize our capital, our production profile as well as our free cash flow generation.

And that's certainly our objective is to continue to levelize our capital, our production profile and our free cash flow, it would be ideal. We certainly recognize it as does the investment community. If we could stay in the market all four quarters of any given year and apply a uniform buyback structure. And that is certainly our objective, and we're working very hard to make that a reality out into the future.

Thanks Eric. We've got time, I think for two questions we're coming up on the hour where there's been a very thoughtful, thoughtful and thorough list of questions coming in today. This is a little different areas, one around executive compensation and your thoughts around executive compensation, a comment around stock options. We don't grant stock options. So maybe just your thoughts on the executive compensation and our approach.

Yes. So our approach to executive compensation is to ensure that all of our executives have a substantial portion of total compensation at risk. Our long-term incentive plan is based on a one-year and three-year TSR those TSRs are linked to them. We are total shareholder returns.

And so when the share price underperforms, so does our compensation. So we take a direct at risk compensation hit when share price underperforms. We think that's the right thing to do. Something like 70% of my of my own compensation is at risk and not to go beyond that in the past 15 or 16 months, I've bought well north of 1.1 million shares of Baytex and Hughes personal money, personal family money to do so. And I think that's the right thing to do as well as insiders need to own the business and we need we need to feel the pain.

So we think at risk compensation is an important principle we think insider ownership is an important principle. And we also mark our compensation every year, too, our peer group. And we are below the mean below the median on virtually every executive level executive level of business in terms of our compensation. And so this is all public information that you can find on as you look through our public circulars. But I do think it's really important to point out one, we benchmark it to.

We maintain a competitive level with our peer group and currently below the median or a central tenancy of that dataset and three substantial at risk compensation with substantial portions of insider ownership.

And last question today, Eric, what has to happen for the share price to reflect the value of the assets. A few investors have reached out today expressing frustration with where we're trading on. What are your thoughts on the value creation for Baytex?

Yes. I'm frustrated too. I feel your pain. And I think there are a number of things that are perhaps idiosyncratic or unique to Baytex that are that are weighing on our short term near term, our share price performance. One is our substantial ownership by that the majority owners of Ranger, Juniper capital. These are smart guys. They're long-term energy investors and they are constructive on our business and on energy in general.

However, because they're perceived as eventual sellers and they hold a 12% position in our stock that weighs on our stock as the so-called overhang. And that's not really not something we can do anything about except to endure. And I think the second one that's unique to our stock is the CRA matter. So the Canadian, our Canada Revenue Agency. We've talked about that. We've disclosed that it's not something that this leadership team really had any responsibility over creating, but we have the responsibility to manage and solve for it.

So we've contained the risk. We're quite confident that we will prevail based on the feedback from our tax counsel. But even if we don't prevail, we've contained the risk with outside insurance. And so we feel pretty good about that, and that's all been very thoroughly disclosed. And then beyond that, I think it's just the it feels like forever since we closed.

And we've done a great job integrating Ranger and driving well performance and general operating efficiency into and from the assets. And we're very pleased with the team's performance. The asset performance and the integration performance, but it's only 10 months since we closed. And that transformational transactions really do take time to stabilize. And I think it's been a bit of a bumpy ride.

So I think first, I would say, Scott, it is not wasted on us that our share price has underperformed. We're doing everything we can to manage that, and we're happy to talk one-on-one with any of you who want to unpack this more.

Excellent. I think it's a great way to wrap up today's call. So I hear well, it will call it there. Thank you, everyone, and thanks to everyone for participating in our first quarter conference call. Have a great day.

This concludes today's conference call. You may disconnect. Your lines. Thank you for waiting leading and have a pleasant day.