Baytex Energy Corp.

Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. Second Quarter 2023 Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode. The conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then 1 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 Echter, Senior Vice President, Capital Markets and Investor Relations. Please go ahead.

Thank you, Ashia. Good morning, ladies and gentlemen, and thank you for joining us to discuss our second quarter 2023 financial and operating results. Today I'm joined by Eric Greger, our President and Chief Executive Officer, Chad Kelmikoff, 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 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 second quarter conference call. We reached an important milestone this quarter with the closing of the Ranger acquisition on June 20th. This transaction has added quality operating scale in the Eagleford and has reinforced what was already a resilient and sustainable business. We have emerged as a well capitalized and diversified North American E&P company and we're poised to deliver a powerful combination of increased pre-cash flow, and increased shareholder returns on a per-share basis. Before discussing our Q2 results, I'd like to take a minute and highlight the three key pillars to our business as we move forward. Number one is disciplined capital allocation. We are committed to a disciplined, returns-based capital allocation strategy targeting modest, single-digit organic production growth. Each of our core assets has 10 or more years of quality development inventory at our current pace of development, and this provides us the ability to efficiently allocate capital in response to changes in regional commodity prices and other economic, cultural, or regulatory circumstances. Number two is our focus on free cash flow generation. Our commitment to efficient capital allocation across our portfolio is expected to generate meaningful free cash flow. We intend to allocate 50% of this free cash flow to debt repayment and 50% of free cash flow to shareholder returns. And number three is maintaining financial strength. We have a strong balance sheet today with significant financial liquidity. This commitment to a strong balance sheet is unwavering. We've established a total debt target of 1.5 billion Canadian dollars, which represents 1.0 times total debt to EBITDA at US $50 per barrel WTI. This debt level will provide us with full flexibility to run our business through commodity price cycles and generate meaningful returns. For 2023, we continue to forecast exploration and development expenditures of approximately $1 billion, which are expected to generate an average production rate of 120,500 to 122,500 BOE per day. For the second half of 2023, we expect production to average 153,000 to 157,000 BOE per day. Based on the forward strip, we expect to generate over $400 million of free cash flow in the second half of 2023 and approximately $500 million of free cash flow for the full year 2023. With the closing behind us, we have moved quickly to enhance shareholder returns. To date in July, we have repurchased 4.9 million shares, and I am very pleased to announce that our Board of Directors declared a quarterly dividend of 2.25 cents per share, or 9 cents per share on an annual basis. I'll now shift to our Q2 results, which include 11 days of operations from Ranger. Production during the quarter was 89,800 BOE per day, 86% oil and NGLs, which exceeded the high end of our Q2 guidance range due to the timing of operated Eagleford wells brought on stream late in the second quarter. It's important to note that our Q2 production was reduced by approximately 4,500 BOE per day due to the curtailment of production caused by wildfires in Alberta. Wildfires continue to burn in northwest Alberta, and we could see further interruptions through the summer and into the fall. For the month of July, we expect production to be curtailed by approximately 2,000 BOE per day. We are incredibly proud of how our personnel have responded to these challenging conditions with sound, safety-focused decision-making and genuine concern for our communities. I would also like to thank the emergency responders and firefighters who courageously continued to protect our communities. We delivered adjusted funds flow of $274 million, 47 cents per basic share in Q2 and generated free cash flow of $96 million or 17 cents per basic share. Exploration and development expenditures totaled 171 million during the quarter, consistent with our full year plan and we brought 34.9 net wells on stream. Operationally, the highlight was the completion of our six-well DuVernay program and new heavy oil exploration success in the Waseca near Cold Lake, Alberta. As a reminder, our Pembina DuVernay light oil assets are in the demonstration stage of commerciality and offer high operating netbacks with the potential for strong economics and organic growth. Our completions and facility execution tracked ahead of plan, which allowed for an acceleration of the on-streaming of wells. Four of the six wells are in the early stages of flow back and are tracking the type curve initial rate expectations. The remaining two wells are expected to be on-stream by mid-August. In the Waseca, we drilled a six-leg exploration well that was brought on-stream in April. The Waseca formation is analogous to the Clearwater across the fairway and is highly amenable to open-hole development, which drives strong returns and capital efficiencies. We're planning three follow-up wells in the second half of 2023. We have an active second half of 2023 development program ahead of us. In Eagleford, we expect to bring approximately 24 net operated and eight net non-operated wells to sales. In the Viking, we expect to bring 46 net wells on stream. And our heavy oil development program has ramped up with four rigs running, two at Peavine, one at Peace River, and one at Lloydminster. We expect to bring 40 net heavy oil wells on stream, 19 at Peavine, 18 at Lloydminster, and three at Peace River. We also have three SAGD well pairs in Carrobert that are expected to be on stream during the fourth quarter. With respect to risk management, we employ a hedge program to help mitigate the volatility in revenue to the changes in commodity prices. For Q3 23 and Q4 23, we have entered into hedges on approximately 40% and 35% of our net crude oil exposure. Utilizing a combination of two-way collars with a floor price of $60 US per barrel and a ceiling price of $100 US per barrel and a 5,000 barrel purchase put at US 60. For the first half of 24, we've entered into hedges on approximately 22% of our net crude oil exposure utilizing two-way collars with a floor price of US 60 per barrel and a ceiling price of US 99 per barrel. I also want to highlight our 2022 ESG and TCFD reports. Both were published yesterday and are available on our website. We've built into our culture a strong connection and sense of responsibility to our communities and stakeholders. We remain focused on key ESG initiatives, including GHG emissions, abandonment and reclamation, strong and mutually beneficial indigenous relations, safety, and climate risk management. These ESG initiatives are essentially driving our long-term sustainability alongside shareholder returns. I would encourage everyone to read through the reports, as they contain a tremendous amount of information and give great insights into the BATEX team and our culture, something I am immensely proud of. As I wrap up my prepared remarks, I would like to reiterate our commitment to operational excellence and delivering long-term value and enhanced shareholder returns. With the Ranger acquisition behind us, we are building an even stronger North American energy company with a high-quality, diversified oil-weighted portfolio across the Western Canadian sedimentary basin and the Texas Gulf Coast Eagle Fruit. And now, operator, we are ready to open the call for questions.