Baytex Energy Corp.

Thank you for standing by. This is the conference operator. Welcome to Paytex Energy year end 2022 results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Brian Ektor. Please go ahead.

Thank you, Ashia. Good morning, ladies and gentlemen, and thank you for joining us to discuss our fourth quarter and full year 2022 financial and operating results. Today, I am joined by Eric Greger, our President and Chief Executive Officer, Chad Kalmakoff, our Chief Financial Officer, and Chad Lundberg, our Chief Operating and Sustainability 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 2022. These evaluations 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 with that, I would now like to turn the call over to Eric.

Thanks, Brian. Good morning, everyone, and welcome to our year-end 2022 conference call. I have now been with Batex for four months, and during these early days, I've had the opportunity to meet many of you in the investment community. This is something I look forward to continuing as we build even stronger relationships with our investor base. Yesterday, we returned to trading on the New York Stock Exchange, and we look forward to improved trading liquidity and a better trading experience for our shareholders. As part of our conversations with shareholders, I've been asked on many occasions, what attracted you to Baytex? The first thing I always point to is the high quality and diversified oil portfolio we hold in Canada and the Eagleford in Texas. With over a decade of development opportunities across the portfolio, the Baytex business is strong. Our objective is to deliver modest, reliable annual production growth, while generating meaningful free cash flow and maintaining reasonable financial leverage. We have a strong shareholder return framework in place and we are committed to building an even stronger and more resilient business over time to increase shareholder value and enhance direct shareholder returns on a per share basis. What has impressed me even more than the quality of the asset portfolio are the people. Both in Calgary and across our field operations, this is a passionate team of high quality professionals who are committed to creating value for shareholders. This really excites me. Operationally, we have delivered volumes to market in a safe and efficient manner and executed our programs to the benefit of all stakeholders. And that's not always easy, especially when the teams are facing days and weeks like we did in December with minus 40 degree temperatures and heavy snowfalls. We're grateful to our employees and contractors for their commitment and perseverance to operating safely and reliably. Let's now discuss our results in a little more detail. 2022 was an exciting year for Batex. We delivered strong operating results, generated record free cash flow, further strengthened our balance sheet, and initiated direct shareholder returns. We generated a 4% year over year increase in production, repurchased 4.3% of our shares outstanding, and reduced net debt by 30%. In other words, BATEX delivered on all of the commitments we laid out at the beginning of 2022. Production during the fourth quarter averaged approximately 87,000 VOE per day, which brought full-year production to 83,500 VOE per day. We generated free cash flow in the fourth quarter of $143 million, and for the full year 2022, a record $622 million. We maintained capital discipline despite inflationary pressures across our portfolio that was consistent with the industry and the broader economy. Exploration and development expenditures totaled $104 million during the fourth quarter and $522 million for the full year. We delivered adjusted funds flow of $256 million in Q4 2022 and $1.2 billion in 2022. During Q4 2022, we reversed $268 million of previously recorded impairments on our assets, primarily as a result of higher forecasted commodity prices. This contributed to net income of $353 million in the fourth quarter and $856 million in 2022. During 2022, we initiated direct shareholder returns, allocating 25% of annual free cash flow to a share buyback program, with 75% of free cash flow allocated to debt reduction. We repurchased 24.3 million common shares for $159 million at an average price of $6.54 per share. In addition, we significantly strengthened our balance sheet, reducing net debt by 30% to $987 million, representing a net debt to EBITDA ratio on a trailing 12 months basis of 0.8 times. Today, our balance sheet is stronger than at any point in the last 10 years. With respect to year-end reserves, we generated a strong PDP recycle ratio of 2.8 times and a 1P recycle ratio of 1.4 times based on 2022 operating net back of $54.64 per BOE. At year-end, our PDP reserves total 124 million BOE Proved reserves total 264 million BOE and proved plus probable reserves total 438 million BOE. And we maintain a strong reserves life index of 13.8 years based on proved plus probable reserves. The present value of our reserves discounted at 10% before tax is estimated to be $5.9 billion up from $5.1 billion at year end 2021. The increase is largely attributable to a higher commodity price forecast being utilized by our reserves evaluator using the consultant average of approximately $81 per barrel WTI in U.S. dollars. Our net asset value a year in 2022 discounted at 10% before tax is $9.28 per share. This is based on the estimated reserves value plus a value for undeveloped acreage, net of long-term debt, and working capital. As a responsible energy producer, we are committed to monitoring greenhouse gas emissions from our operations, setting targets to reduce our emissions intensity, and pursuing cost-effective strategies to produce energy for society with a lower carbon intensity. In 2022, we reduced our greenhouse gas emissions intensity by 15% from 2021 levels. This is a 59% reduction from our 2018 baseline and represents an annual reduction of 1.7 million tons of CO2 equivalent, which is the equivalent of taking 340,000 cars off the road annually. Operationally, the highlight continues to be our Clearwater development at Pevi. This is an asset that, at current commodity prices, generates the strongest economics within our portfolio and has the ability to grow organically while enhancing our free cash flow profile. During the fourth quarter, our clear water production averaged 11,000 barrels per day, and for the full year 2022 averaged 7,400 barrels per day. During 2022, we drilled 22 net wells at Peavine with initial well performance continuing to outperform type curve assumptions. And we now hold the top 15 initial rate wells drilled across the play. We expect to bring approximately 31 net wells on stream at Peavine in 2023. Looking forward, we expect another strong year in 2023 as we advance development across our high quality oil weighted portfolio. further delineate our Peavine Clearwater acreage, and progress our DuVernay light oil resource play. We are committed to allocating capital efficiently to generate meaningful free cash flow and increasing direct shareholder returns. Our 2023 guidance remains unchanged as we target production of 86,000 to 89,000 VOE per day with exploration and development expenditures of $575 to $650 million. Based on the forward strip, we expect to generate approximately $450 million of free cash flow in 2023 and expect to reach a net debt level of $800 million during Q3 2023, at which time we anticipate increasing direct shareholder returns to a 50% allocation of our free cash flow and accelerating our share buyback program. I'm excited to continue helping move this business forward. And now, operator, we are ready to open the call for questions.