Baytex Energy Corp. (NYSE:BTE) Q4 2023 Earnings Call Transcript
Baytex Energy Corp. (NYSE:BTE) Q4 2023 Earnings Call Transcript February 29, 2024
Baytex Energy Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. Fourth Quarter and Full-Year 2023 Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. [Operator Instructions]. I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead.
Brian Ector: Thank you, Galen. Good morning, ladies and gentlemen, and thank you for joining us to discuss our fourth quarter and full-year 2023 financial and operating results. Today, I am joined by Eric Greager, our 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. On the call today, we will also be discussing the evaluation of our reserves at year-end 2023.
These are valuations that have been prepared in accordance with Canadian disclosure standards which are not comparable in all respects to United States or other foreign disclosure standards. Our remarks regarding reserves are also forward-looking statements. 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 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.
Eric Greager: Thanks, Brian. Good morning, everyone and welcome to our year-end 2023 conference call. I'm excited to discuss our 2023 results and in particular, our results over the past two quarters, which demonstrate the merits of the Ranger acquisition and the strength of our oil-weighted portfolio. Before diving into our results in a little more detail, I want to take a moment and recognize the hard work of our passionate team of high quality professionals in Houston and Calgary. Our teams have come together to create a new and stronger organization that we are all proud to be a part of. I would like to give a shout out in particular to our field staff who work under extraordinary conditions at times. We were reminded of that in January with extremely cold temperatures across North America, which was followed by heavy rainfall in Texas.
We are grateful to our employees and contractors for their commitment to safe operations and their tireless effort to provide reliable energy to fuel people's lives. Let's turn to 2023. On June 20, we closed the acquisition of Ranger, adding quality scale in the Eagle Ford along the U.S. Gulf Coast and reinforcing a resilient and sustainable business. In conjunction with closing, we increased direct shareholder returns to 50% of free cash flow, which allowed us to increase the value of our share buyback program and introduced a dividend. The remainder of our free cash flow was allocated to debt reduction. In 2023, we returned $260 million to shareholders through our share buyback program and dividend. Our normal course issuer bid allows for the purchase of up to 68.4 million common shares during the 12-month period ending June 28, 2024.
Through December 31, 2023, we repurchased 40.5 million common shares for $222 million, representing 4.7% of our shares outstanding. In addition, we declared two quarterly dividends each of $0.0225 per share totaling $38 million. In 2023, we increased production per basic share by 16% over 2022. Production in Q4 '23 averaged just over 160,000 BOE per day, exceeding our guidance for the quarter and up 6% from the third quarter. Production for the full-year 2023 average 122,000 BOE per day compared to 83,500 in 2022. For the second half of '23, exploration and development expenditures totaled $608 million, consistent with our plan following the Ranger acquisition. Capital spending during the fourth quarter was 10% below guidance, demonstrating our commitment to disciplined capital allocation.
We generated free cash flow of $291 million or $0.35 per share in the fourth quarter and $544 million or $0.77 per share for 2023. Our business improved structurally through the Ranger acquisition with increased exposure to premium U.S. Gulf Coast pricing and improved margins. In Q4 '23, over 40% of our liquids production received WTI equivalent pricing. In addition, we improved our cash cost structure, which consists of operating, transportation and general and administrative expenses. In Q4 '23 by 12% on a BOE basis compared to Q4 '22. On December 11, we completed the divestiture of Viking assets at Forgan and Plato in Southwest Saskatchewan for proceeds of $160 million. Production from the assets at the time of the sale was approximately 4,000 BOE per day.
During the fourth quarter, we reduced our net debt by 10% due to a combination of free cash flow generation, net proceeds from the Viking divestiture and the impact of a strengthening Canadian dollar relative to the U.S. dollar. We maintained balance sheet strength with a total debt-to-EBITDA ratio of 1.1x. We employ a disciplined commodity hedging program to help mitigate the volatility in revenue due to changes in commodity prices. In 2023, our hedging program generated about $36 million. For 2024, we have entered into hedges on approximately 40% of our net crude oil exposure, utilizing two-way collars with an average floor price of $60 per barrel, and an average ceiling price of $96 per barrel. At year-end 2023, we recorded noncash impairments on our legacy nonoperated Eagle Ford and retained Viking assets of $834 million.
This noncash impairment resulted in a net loss of $627 million or $0.75 per share in Q4 '23 and $235 million or $0.33 per share in 2023. Operationally, the integration of the Ranger assets has progressed well, and we continue to deliver strong results across the black oil, volatile oil and condensate thermal maturity windows. In Q4 2023, nine operated wells were brought onstream bringing the total operated wells on production since closing Ranger to 22. The nine wells brought on stream during the fourth quarter generated an average 30-day initial production rate of approximately 1,600 BOE per day, 80% of which is oil and NGLs per well. On our nonoperated acreage, there were no new wells brought on stream during the fourth quarter. When we compare these results to a data set of over 1,000 Eagle Ford wells sourced from public data, our second half performance ranks in the top quartile of all 2023 wells drilled in the Eagle Ford.
And because of longer laterals on a production per lateral foot basis, we're in the top of the second quartile. So I'm very pleased with our performance. We continue to optimize base performance and remain focused on strong drilling and completions performance. For 2024, we are targeting an 8% improvement in our operated drilling and completion cost per lateral foot over 2023. In the Pembina Duvernay, we commenced drilling operations in January and to date, have drilled three of seven wells planned for 2024. Completion activities are scheduled to commence in May. We continue to advance our understanding of the reservoir and believe the asset offers significant economic inventory and growth potential. In our heavy oil business, our Clearwater production averaged over 16,000 BOE per day during the fourth quarter, up 48% from Q4 2022.
At Peavine, we brought 31 wells on stream during 2023 and initial well performance continues to outperform expectations. In 2024, we will see continued exploration across our heavy oil portfolio with up to 14 stratigraphic test wells planned. With respect to reserves, our year-end report reflects the Ranger acquisition with a meaningful increase in high value light oil production along the U.S. Gulf Coast. Proved developed producing reserves increased by 49% from 124 million to 185 million BOE. Proved reserves increased by 55% from 264 million to 410 million BOE and proved plus probable reserves increased by 51%, from 438 million to 663 million BOE. In the Eagle Ford, proved and proved plus probable reserves increased 117% and 130%, respectively.
Reserves associated with the Ranger assets were consistent with our assessment of the Ranger reserves at year-end 2022. In Canada, we replaced 131% of production on a proved plus probable basis, net of the divestiture of our Viking assets. Overall, we generated a PDP recycle ratio of 1.7x based on a 2023 operating netback of $41 per BOE. As responsible energy producer, we are committed to reducing the intensity of greenhouse gas emissions from our operations. Our corporate objective was to reduce our GHG emissions intensity measured as kilograms of CO2 equivalent per BOE by 65% by 2025 relative to our 2018 baseline set on our Canadian assets. And I'm pleased to report that in 2023, we reduced our GHG emission intensity by 9% and achieved our 65% target two years early.
We're in the process of road mapping 2030 GHG reduction targets. As I wrap up my prepared remarks, I would like to reiterate our commitment to a disciplined, returns-based capital allocation philosophy to drive increased per share returns. The three key pillars of our business strategy are disciplined capital allocation, strong free cash flow generation and maintaining financial strength. Our 2024 guidance remains unchanged with exploration and development expenditures of $1.2 billion to $1.3 billion and production of 150,000 to 156,000 BOE per day. I would note that we expect our first quarter production to be approximately 2,000 BOE per day lower than our budget due to extreme weather conditions across North America in January, which led to production disruptions.
In 2024, we intend to continue progressing our Pembina Duvernay, further delineate our Clearwater and Mannville heavy oil fairways, and deliver strong drilling and completion performance in Eagle Ford and Viking. Based on the forward strip, we expect to generate approximately $575 million of free cash flow in 2024. This is up 8% from our budget announcement in December due to an improved outlook for crude oil prices. Our capital program is weighted to the first and third quarters, and as a result, we expect to generate a significant amount of our 2024 free cash flow during the second and fourth quarters. I'm very pleased with the operating results across our portfolio, which has set the stage for a strong 2024. Our Board has declared a Q1 cash dividend of $0.0225 per share to be paid on April 1, 2024.
We are well capitalized and remain committed to creating long-term value and increasing shareholder returns. And now, operator, we're ready to open the call for questions.
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