Baytex Energy Corp
TSX:BTE
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
3.22
5.46
|
Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy First Quarter 2020 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions]I would now like to turn the conference over to Brian Ector, the Vice President, Capital Markets. Please go ahead.
Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us today to discuss our first quarter 2020 financial and operating results. With me today are Ed LaFehr, our President and Chief Executive Officer; and Rod Gray, Executive VP and Chief Financial Officer. We also have on the line from their work-at-home stations today, Kendall Arthur, Vice President, Heavy Oil; Chad Kalmakoff, Vice President, Finance; Chad Lundberg, Vice President, Light Oil; and Scott Lovett, our Vice President of Corporate Development.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 afternoon's press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified.And with that, I would now like to turn the call over to Ed.
Thanks, Brian, and good morning, everyone. I'd like to welcome everybody to our first quarter 2020 conference call. Before we begin, I would like to take a moment and acknowledge all of the frontline health care workers and essential service providers across Calgary and in the communities where we operate for all of the tremendous work they've been doing throughout the COVID crisis. Many of our employees have family members or friends on the front lines, and we are very grateful for their effort. On behalf of the entire Baytex family and all of our stakeholders, we thank you.I also want to acknowledge our employees who have responded to this unprecedented challenge our industry is facing with the poise and commitment that we have all come to expect. We have implemented a number of measures to foster resilience through these unpredictable times, including a work-from-home program and altering shifts in the field. We are focused on protecting the health and safety of our personnel while maintaining our operations. And to date, we have had no positive cases of COVID-19 within the company.The demand disruption as the global economy has shut down, the resulting collapse in crude oil prices and the uncertainty over the duration of this downturn can strain any organization. And I am very proud of our team and how we have responded. As market conditions have changed during the first quarter, we moved quickly to adjust our business plan. We curtailed exploration and development spending in March which resulted in capital spending of $177 million, 12% lower than our original expectation. Approximately 70% of our capital was directed toward our operated assets in Canada where we have had a very active program in both the Viking and heavy oil.We generated strong production of 98,400 BOEs per day, which was ahead of the top end of our guidance for the year. We delivered adjusted funds flow of $133 million or $0.24 per basic share and generated an operating netback of $16.05 per BOE. All of our business units executed flawlessly during the quarter and delivered exceptional results. Production in the Viking averaged almost 25,000 BOEs per day, which is the highest rate ever achieved for the asset. Our heavy oil business unit delivered over 31,000 BOEs per day, and the Eagle Ford remained consistent at over 36,000 BOEs per day.When oil prices started to decline as the first quarter unfolded, our priorities changed. We moved aggressively to shift our operating capital activities to maintain financial liquidity, minimize capital outlays and emphasized cost reductions across all facets of our business to retain long-term value. We previously announced a 50% reduction in our capital spending for this year to $260 million to $290 million from $500 million to $575 million originally. With this revised capital program, we suspended drilling and completions operations in Canada and expect a moderated pace of activity in the Eagle Ford.We are also intensely focused on driving further efficiencies in our operations. We have taken actions to achieve $135 million of cost reductions for 2020 related to operating, transportation and general and administrative expenses. We are also voluntarily shutting in approximately 25,000 BOEs per day of production. This includes approximately 2/3 of our heavy oil production and 15% of our light oil production. We currently expect the heavy oil volumes will remain off-line for the balance of this year. For the light oil assets, about 5,000 barrels per day of production has been shut in for April and May. These volumes will be evaluated monthly, and we currently anticipate production resuming in the second half of the year.While these decisions are never easy, at current commodity prices, the shut-in of these barrels will have a positive impact on our adjusted funds flow, improve our financial liquidity and optimize the value of our resource base. Should operating netbacks change, we have the ability to restart wells in short order or shut in additional volumes. Taking into account the incremental shut-in volumes, we have revised our production guidance range for 2020 to 70,000 to 74,000 BOEs per day from 85,000 to 89,000 BOEs per day previously.I mentioned earlier, our $135 million of cost reductions. I commend the work of our field teams to drive further efficiencies during these challenging times. On a per unit basis, our operating expense guidance is unchanged as we flex down all variable costs and mitigate some fixed costs associated with our field operations. In addition, we are realizing an approximate 25% reduction in transportation expenses due to reduced volumes. We are also reducing our G&A expense by 11% to $40 million.While this might get overlooked in today's environment, inventory enhancement continues to be a priority for our teams. And we are also committed to building and maintaining respectful relationships with indigenous communities and creating opportunities for meaningful economic participation. During the first quarter, we executed a strategic agreement with the Peavine Metis settlement in the Peace River area that covers 60 sections of land directly to the south of our Seal operations. We have identified significant potential for this early stage exploratory play targeting the Spirit River formation, a Clearwater formation equivalent, with first activity planned on the land for 2021.I will now turn the call over to Rod to discuss our balance sheet and risk management.
Thanks, Ed, and good morning, everyone. As Ed mentioned, the demand destruction caused from shutting down the economy to prevent the spread of the coronavirus, combined with an increasing supply of crude oil from Russia and Saudi Arabia, has caused an unprecedented drop in crude oil prices. This decline in prices, combined with the economic uncertainty, led us to recording an impairment during the first quarter of $2.7 billion as the carrying value of our oil and gas properties exceeded their recoverable amounts. These impairments may be reversed in the future should commodity price forecast increase or there be indications of a change in value.We had strong liquidity at the end of the first quarter with $417 million of undrawn capacity on our credit facilities, resulting in approximately $315 million of liquidity net of working capital requirements. We discussed this on our last quarterly conference call, but it's important to reiterate. During the first quarter, we enhanced our long-term note maturity schedule, which provides us with improved flexibility and liquidity. On February 5, we issued USD 500 million principal amount of 8.75% senior unsecured notes maturing April 1, 2027. We also redeemed 2 series of notes during the quarter. On February 20, we redeemed USD 400 million due June '21; and on March 6, we redeemed CAD 300 million due July 19, 2022. Following these redemptions, our first long-term note maturity of USD 400 million is not until June 2024. We also extended the maturities on our credit facilities to April 2, 2024. The credit facilities are not borrowing base facilities and do not require annual or semiannual reviews.We also continued to manage our commodity price risk through an active hedging program. We realized a financial derivatives gain of $27 million in Q1 2020. For the remainder of 2020, we have entered into hedges on the majority of our crude oil exposure. This is comprised of WTI-based fixed price swaps on 2,000 barrels a day at USD 58 per barrel and a 3-way option structure on 24,000 barrels a day (sic) [ 24,500 barrels a day ] that at current oil prices give us WTI plus USD 7.60 per barrel. We have also entered into additional financial hedges to mitigate the volatility in our adjusted funds flow for the next few months. This includes hedging 11,300 barrels a day for Q2 2020 and 21,000 barrels a day for July at weighted average prices of approximately USD 25 per barrel.For the remainder of 2020, we have also WTI to MSW basis differential swaps for 6,400 barrels a day on our light oil production in Canada at $6 per barrel and WCS differential hedges on 6,500 barrels a day at WTI to WCS differential of about $16 per barrel.Crude by rail is also an integral part of our egress and marketing strategy for our heavy oil production. For 2020, we had originally contracted to deliver approximately 11,500 barrels a day of our heavy oil volumes to market by rail. In the current pricing environment, we expect our crude by rail volumes to be significantly reduced. Full details of our hedge program can be found in our first quarter financial statements.And with that, I'll turn the call back over to Ed for some concluding comments.
Okay. Thanks, Rob. In this challenging environment, we've responded decisively to protect the health and safety of employees and to dramatically reposition operating activity to maximize our cash flow and minimize the draw on our liquidity. Our operating teams continue to drive cost savings and prudently shut in production that is currently uneconomic, as I mentioned. And the refinancing of our long-term notes and extension of our revolving credit facilities to 2024 were both important steps in improving our financial flexibility and liquidity. You can be assured we are working very hard for all stakeholders to make the necessary changes and overhauls to our plans in 2020 in this extraordinary environment.And with that, I will ask the operator to please open the call for questions.
[Operator Instructions] Our first question comes from Manav Gupta with Crédit Suisse.
I'm just trying to understand this that -- again, right now, both Viking and heavy oil have been shut. You have indicated that heavy oil will most likely remain shut for the rest of the year. At the same time, you are evaluating Viking production every month. I'm trying to understand what's the thought process. When could you actually look to restart the Viking? And in what circumstances could you actually think about bringing back heavy oil, if any, during the year?
Yes. It's a really good question, Manav, in a very dynamic environment. So when I say 25,000 barrels a day are shut in, that's today, and that's on an instantaneous basis and for the month of May. Having said that, we're looking at opportunities to sell at -- in the range of margin that gives us a $5 excess over variable costs to a $10 excess over variable cost. And we're at that point right now and into June. So we've made some spot sales. We've done some things. But -- so having said that, right now 24,000 barrels a day of heavy oil are shut in and a very small amount of light oil is shut in, and it's primarily Duvernay. It's not really Viking. And in June, we plan to bring on a vast majority of all of our light oil. And in heavy oil, we can start bringing on barrels if prices not only give us that $5 to $10 excess over variable cost, but if we see some stability in the macro environment that suggests the price environment we're in will be stable. So we're looking at that very closely.And it's not all are done. It comes in tranches. So there's a first tranche of barrels that are coming back in June, as I mentioned. There's a second tranche that could come on later. And it's not a cookie-cutter here. It's a very dynamic and volatile situation, and our marketing and asset teams are remaining extremely nimble. So the way I would plan in terms of modeling is 25,000 barrels a day is what we've said today, and that should moderate itself down to 20,000 barrels a day for second half of the year.
Our next question comes from Phil Skolnick with Eight Capital.
Just on the cost reductions, how much would you say would come back in a more normalized environment? And how much is this more permanent for the corporation?
Yes, really, really good question, and one that we're working actively right now. But of the $135 million of cost savings, roughly $80 million of that is OpEx and another big chunk of that is transportation and then a very small amount is G&A. But let's focus on the OpEx for a moment because some of the transportation costs will come back with volumes and some of the OpEx will as well. I would give you kind of a 50-50 blend of -- 50% of the $135 million is due to volumes simply being off and 50% is truly cost savings and deferrals. Some of that, I think, will come back. And so here are some examples. Inside OpEx, we have items like fuel and maintenance, I would say labor. Some of these areas, we're working hard. We've furloughed a lot of people and some of those people will be necessary to come back and help bring back those volumes, but not all, reinventing the way we're working out there as well. And repairs, maintenance, workovers remains to be seen what we do there, but we're definitely seeing cost reductions and deferrals there. But I would look at it as 50-50. And of the 50%, I'm calling cost savings, some of that will come back. I just don't have a number for you right now.
Okay. No problem. Just -- I guess then on the cost savings front. I mean is there anything with respect to maintenance CapEx that you're looking to do that then? Looking to 2021, assuming it's a normalized environment, that maybe it would cost you less to maintain production whatever that level may be.
Well, there's a big category we call repairs, maintenance and supplies. And I think all of that is being challenged and looked at to be reinvented or looked at phasing and type of maintenance and when it's done and how to shelter more, et cetera. But -- so I don't have an answer on that, and I don't have an answer on how much labor will need to come back either. I know not all of it will come back. And we're committed to that. But I would say we're -- those are the things we're working on right now, Phil.
Our next question comes from Greg Pardy with RBC Capital Markets.
It's Adnan Dhanani on for Greg. Just a quick one from me. As you ramp down your crude by rail volumes, what amount of things are you expecting there? Are there any associated [ key numbers on those ]?
I'll turn that over to Rod on marketing. We're not going to talk about our specific agreements, but we were running about 12,000 barrels a day in Q1 and we've ramped that down about 50%. We've shut in almost the entirety of our Peace River field, which is a majority of our rail volumes. So we're down to 2,000 barrels a day in Peace River. And therefore, when you're talking about shutting in an entire field, then that becomes a significant conversation throughout the value chain into your markets. Now before I pass it over to Rod on anything he wants to add, he did say -- Rob did say that railing our volumes to the Gulf Coast is a priority long term until we have enough egress and pipelines in place. So it is part of our strategy to rail volumes, and we have some very important customers that we like dealing with. But we're down to kind of minimum levels, I would say, both in Peace River and in Lloyd on our rail volumes. Rod, do you want to add to that?
Yes, I think Ed said it. We've got good working relationships with our partners around rail, and we continue to view crude by rail as an integral part of getting our product to markets. And thankfully, we've been able to work through this challenging time with the majority of the partners.
This concludes the question-and-answer session. I would like to turn the conference back over to Brian Ector for any closing remarks.
All right. Thank you, operator, and thanks, 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 participating, and have a pleasant day.