Baytex Energy Corp.

Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Core fourth quarter and year-end conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. You may also submit questions in writing at any time using the form in the lower section of the webcast frame. Should you need assistance during the conference call, you may signal an operator by pressing star, then 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, Michael. Good morning, ladies and gentlemen, and thank you for joining us to discuss our fourth quarter and full year 2024 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 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 2024. These evaluations have been prepared in accordance with Canadian disclosure standards, which are not comparable in all respect to United States or other 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're listening in today via the webcast, you will have the opportunity to submit an online question, and time permitting, we will strive to answer your question. With that, I would now like to turn the call over to Eric.

Thanks, Brian. Good morning, everyone, and welcome to our year-end 2024 conference call. I'm excited to discuss our 2024 results, but first, I want to take a moment and recognize the hard work of our high-quality teams in Texas and Western Canada. We have a strong and resilient organization that we are all proud to be part of. I would like to give special mention to our field staff who work under extraordinary conditions. We were reminded of that again this year with extremely cold temperatures across North America. We are grateful to our employees and contractors for their commitment to operating safely and their perseverance to deliver energy to power people's lives. Let's turn to the highlights of 2024. Our 2024 production and capital expenditures were in line with original full-year guidance, and our results speak to our disciplined capital allocation philosophy that continues to deliver increased per share returns. In 2024, we generated 10% production per share growth and grew reserves per share across all categories. We improved our cash cost structure by 5% on a BOE basis. We increased our 2P net asset value per share by 13%, and we reduced net debt by 5% in Canadian dollar terms and 13% in U.S. dollar terms. It's important to keep in mind that most of our debt is held in U.S. dollars and converted to Canadian dollars for reporting purposes. On the reserves front, we replaced over 100% of our production on both 1P and 2B bases. Importantly, our booked drilling locations within our 2P reserves report represent only half of our net risk drilling inventory. We generated strong PDP recycle ratios of 1.9 times and 2.7 times on a 1P and 2P basis, respectively, which reflects the efficiency of our capital program and our high net back oil-weighted portfolio. Across these important value creation measures, I am pleased to say that our team delivered. Now I'll turn the call over to Chad Kalmakoff to discuss our financial results.

Thanks, Eric. Our 2024 results demonstrate our commitment to generating meaningful free cash flow and delivering strong shareholder returns. We generated free cash flow of $656 million in 2024, and consistent with our plan and the timing of our capital program, over 70% of this free cash flow was generated in the second half of the year. With our balanced shareholder return framework, we allocate about half of our free cash flow to debt reduction and the balance to shareholder returns, which includes share buybacks and our quarterly dividend. In 2024, we repurchased 48 million common shares, sending 6% of our shares outstanding. In addition, we declared four quarterly dividends of 2.25 cents per share. Over the last six quarters, we generated free cash flow of 1.1 billion, and returned $550 million to shareholders through our share buyback program and dividend. This includes repurchasing more than 10% of our shares outstanding. Debt reduction continues to be a priority. As Eric said, in Canadian dollar terms, we reduced net debt by 5% in 2024, but in U.S. dollar terms, the reduction was more significant at a 13% reduction. A stronger U.S. dollar benefits our top-line revenues and bottom-line free cash flow. In 2025, we expect to generate approximately $400 million of free cash flow at U.S. $70 WTI. Similar to 2024, based on our production profile and timing of capital expenditures, the majority of our free cash flow is expected to be generated in the second half of the year. Now I'll turn the call over to Chad Lumberg to discuss our operating results.

Thanks, Chad. I am pleased with the results of our 2024 program. We safely executed on budget and delivered production consistent with our original full-year guidance. Across our portfolio, we delivered strong drilling and completions performance in the Eagle Ford and Pembina Duvernay, and further delineated our Clearwater and Manville heavy oil acreage. In the Eagle Ford, we brought on stream 64 wells, including 51 operated, Our development program was largely focused on the black and volatile oil windows of our acreage, and we realized an 8% improvement in operated drilling and completions costs per completed lateral foot over 2023. In 2025, we intend to run a consistent two-rig, one frack crew program and are in the process of realizing a further 7% improvement in drilling and completion efficiency. In our Canadian light oil business, we brought on stream seven strong wells in the Pembina Duvernay and made substantial strides in advancing our understanding of the play. In 2025, we have expanded our program to include three, three well pads, and look forward to sharing the results of the program later this year. In the Viking, we brought on stream 95 wells and anticipate a similar program in 2025. Our heavy oil business continued to deliver top well results in 2024. We brought on stream 31 clear water wells at Peavine, nine wells at Peace River, and 40 wells across the broader Manville group in Lloydminster. In 2025, we expect to bring on stream 112 heavy oil wells, including 33 clear water wells at the Peavine. As we progress through the year, our operating teams will continue to focus on safe and efficient development across our portfolio. And with that, I will turn the call back to Eric for his closing remarks.

Thanks, Chad. I am pleased with our 2024 operating and financial results, our free cash flow generation, and our demonstrated commitment to safe operations and shareholder returns. For 2025, our full-year guidance is unchanged, with exploration and development expenditures of $1.2 to $1.3 billion and production of 150,000 BOE a day at the midpoint. As Chad Lundberg mentioned, we are planning an efficient, level-loaded pace of development in the Eagleford. further acceleration and advancement of the Pembina DuVernay, and continued efficient heavy oil development, along with a level Viking operation. We are well capitalized and remain focused on discipline, capital allocation, prioritizing safe operations, free cash flow generation, and shareholder returns. And now, operator, we are ready to open the call for questions.

We will now begin the analyst question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. To submit your question in writing, please use the form in the lower right section of the webcast frame. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. The first question comes from Mino Holschoff with TD Securities. Please go ahead.

Thanks, and good morning, everyone. I'll start with a question on tariffs given yesterday's update, and maybe I should know this, but have they actually taken effect today? And if so, what are the mechanics of it, and how is that flowing through the business? And Eric, maybe given your strong industry connections in the U.S., what is your best guess on how all of this plays out?

I think, Mano, first of all, good morning. Thanks for the question. As far as we know, the tariffs have been implemented and are effective this morning. So that's the best information we've got. You know, the structure of these is still, you know, I think a little bit of a moving target because things move around it seems like constantly. What I would say is these are import tariffs, so products flowing into the United States. The importer is charged a duty, and that duty is the direct kind of first order consequence of the tariff. And that's pretty straightforward, I think, to calculate. The thing that becomes really difficult is the second and third order consequences and how those impacts are distributed through the economy, all of the forward and backward linkages and what that means to distribution of impacts. My hunch is that if the impacts are uniform on Canadian energy imports to the United States, that it's going to disproportionately impact Midwest refiners. because of their dependence on pipeline-connected WCS. And I expect that to be pretty substantially negative, and that's not going to be entirely borne by the Canadian energy exporter. That's what I think will ultimately begin to happen. But I think the tariff conversation, both the quantum and some nuance between product streams, is also probably still a moving target. We are shielded to a certain degree because 60% of our production originates on the U.S. Texas Gulf Coast, produced in Texas, sold in Texas, denominated in U.S. dollars, and handled in our U.S. operation, our U.S. organization, and paid down against U.S. debt, all within the ring fence of the U.S. to the extent that that all happens within the four corners of the U.S. And that protects us. That insulates us. To what degree, you know, over the long arc of time, that's all going to change and kind of share impacts, it's difficult to know. But we do expect some insulation directly as a consequence of that 60 percent cash flow from the U.S. Other than that, the only thing I think that is worth pointing out is that the best reflection of tariffs flowing through any of our businesses in Canada as Canadian producers is on the basis divs. We'll watch that. That'll price the impact in kind of continuously. Sorry, go ahead, Mano.

No, that was great color, Eric. Maybe I'll just flip over to oil prices. There's... You can appreciate there's a growing bearishness out there. I'm looking at my screen and we're down another two and a half dollars today. If we were to assume that oil prices check back to $60 and sit there for a while, what changes should we expect in terms of how you allocate capital into the end of the year and beyond?

Yeah, it's a great question, Menno. And, you know, we've been... I would like to say, preparing for this, if you think back to our December 2025 budget when we released it, we marked that against a $65 WTI environment. And in that period of time, late in 2024, prices were in the mid to high 60s, and the 2025 forecast looked weak. It rallied through the end of the year and in the early part of 2025, but it's weak again. And so what I would say is, I'll reiterate, What I maybe said then, even during that budget announcement, which is we will rationalize low returning projects when prices drive those returns to the point of it not being worth investing the capital in. And those will be distributed across our portfolio. There's probably no part of our portfolio that will be immune to it because we have a distribution of assets across each play. And we're running asset level economics which honor obviously the basis differentials, the local pricing and all the rest. And so I can't give you a quantum right now, but what I would say is if prices move down to 60, there will be a couple of consequences. One, we and many others are likely to pull back on capital activity and that should help solve the problem. The other thing that will happen is input costs will fall as a consequence of that reduced activity, and that should lower break-evens not just in our business but in others as well. And so with that, I'll kick it back to you, Menno, and see if you've got other thoughts.

No, that's it for now. Thanks, Eric. I'll turn it back.

Thanks, Menno.

Again, if you have a question, please press star, then 1. Our next question comes from Greg Party with RBC Capital Markets. Please go ahead.

Hey, good morning. This is Rob Mann. I'm for Greg Party, and thanks for taking my questions. My first one just surrounds your reported F&D costs, which came in much lower relative to 2023. Is there anything specific you could point us towards that drove the improved results?

Yeah. Yeah, well, good morning. Thanks, Robert. You know, what I would point to is a couple of things. Improvements in capex and cash costs, you know, across the board, that helps on the F&D, and improvements in, you know, performance and in, you know, the quality of the high-value oil stream. I'm going to see if Chad Lundberg's got anything he wants to add to that. But I think, you know, this F&D commentary and the whole strong PDP reserves print really is a function of across-the-board improvements. And maybe Chad can talk a little bit more about just the capex improvements that have been made across the board, but in particular in the Eagleford.

Well, yeah, I was just going to go to the results we drove out of the Eagleford last year. 8% improvement in our capital costs, and that's manifesting itself to the reserves book with respect to future development costs and ultimately driving, in this case, a stronger F&D. We're proud of, in this case, the Texas team. We think we have more efficiencies coming this year, upwards of 7% that we're starting to realize as we operate now through Q1. And so keeping the trend going. I think just the last piece on OPEX, it's not all a capital cost equation. On the operating front, it's the same, a full court press across the entirety of our operation. And we have been realizing, again, some strong results there.

No, that's great. Thank you. Maybe just for my next question, shifting gears a little bit, just to your Duvernay activity this year, could you provide us with any additional details in terms of timing and drilling program specifics? And I'll leave it there after that. Thank you.

Great. Thank you. Duvernay, we have our drilling rig mobilized, and we've been drilling ahead since the beginning of the year. We'll keep that rig on location, drilling these three well paths. and everything is moving according to plan. We continue to make improvements both in the design and in execution. You might recall last year I was really positively impressed with the pace of improvement. I think we drilled those wells in 2024 20% faster and 10% cheaper than the year prior. And we're on course to continue to make improvements not just on the cost side of the business, but on the capital side of the business. And importantly, we've still got levers to pull and designs in the works that will drive improved well performance out of the reservoir. And so I think there's still a lot to go there. But three well paths are underway. And as soon as we have the opportunity to move in the frack crew on the first pad, we'll do so. Chad, you want to add some color to the timing there?

Well, I was going to add two things. So, I mean, we're just releasing our first drill. That means we're getting into completion operations. You could expect results in the Q2 release timeframe on the first pad coming online. Just to Eric's point, we're going to continue last year's efficiencies. He talked about the capital reductions, the drill day reductions. We've also moved a long ways on just development and understanding of the play you know, headline 40% increase in IPs last year on our 24 program. And then probably even more importantly, just thinking longer term, we're still seeing a trend up on EURs. So 15% bump on EURs over the 23 program. And that's really a result of the frack efficiencies, really understanding the stimulation. And then a lot of that, I think the last point would be the cross-border collaboration with the Eagle Ford where we're really just understanding the unconventional space and taking our learnings from both areas to deploy into each other and make them better.

That's great. Thanks, guys.

This concludes the question and answer session from the phone lines. I'd like to turn the conference back over to Brian Echter for any questions received online.

Okay, thank you. Yeah, we've had a few questions come in online. The first question, an investor noted the asset exchange on the Peavine Métis settlement, Eric, 44.5 net sections of land acquired. Just comment on some additional color around that exchange, assets we exchanged. It was a cashless transaction, I believe. Any color you can share around that addition to our acreage position?

Yeah, what I would say is, you know, clearly the BATECs, heavy oil team at Peavine had really moved quickly back in 2020 and 2021, ring fencing and identifying the best quality reservoir. And we've now added some adjacent reservoir. Our partner up there, and I don't mean the Peavine Métis, the surface owners and the community in which we operate, but more importantly, I'm referring to the operating partner that traded these lands. They were adjacent to us. They weren't having the same success on these lands that we've enjoyed within the confines of our Peavine asset boundaries. And so it's just good business for both sides to core up a little bit. And so we took the strength and scale of our Peavine asset and cored up around it, and we had other things to offer the counterparty that were more valuable to them than they were to us. So it's really a win-win, and it's good business. We've got a great relationship with the other parties up there, and it just worked out well for both sides.

Okay, thanks, Eric. A couple questions, and it's kind of a three-part question that I'm going to aggregate from a few questions that have come in today, but around the U.S. dollar denominated debt, you had some prepared remarks, Eric, and Chad, you spoke to it as well. In U.S. dollars, we paid off $241 million in 2024. It's less in Canadian dollar terms. Eric, can you just or Chad provide some additional context or color on our reporting of our debt and the actual debt repayment that we're seeing?

Yeah, I'm going to start and then I'm going to kick it over to Chad to fill in the blanks because I probably won't get it all comprehensively answered. I think it's really important to understand that most of our debt, that both bond issues and most of our facilities are U.S. dollar denominated as their native currency. So they sit with U.S. dollar statements, and that's the native currency. So when we report on any of these debt instruments, we have to convert into Canadian dollars for Canadian reporting purposes. And when U.S.-Canadian FX expands, when the U.S. dollar strengthens against the Canadian dollar, then what happens is that multiplier goes up, and it makes the debt look as though, when you report it in Canadian dollars, look as though it's not going down as fast as it really is. Because in the native currency, we're paying it down, but it's being multiplied against an ever-increasing, weakening Canadian FX multiplier. And that has been difficult to describe, over time and so what we're trying to do today and going forward is to describe our U.S. dollar denominated debt in U.S. dollar pay down because that's the most clear and straightforward way to do it and it then allows readers to understand that we've actually paid down more U.S. dollar debt in a quantum, and the dollars are bigger when you pay down a U.S. dollar versus a Canadian dollar. So we've paid down more, and they're bigger dollars. So we've made a lot more impact than has previously been, I think, appreciated. So that's kind of a long answer, but Chad, anything you'd like to say beyond that?

No, I don't think I'd add anything. I think the other commentary would be generally we do have 60% of our business in the U.S., so we kind of look at that as that U.S. dollar debt being naturally hedged against the value of that U.S. business. We generate U.S. cash flows, which we can then repay in U.S. dollars. So, you know, it is a bit of a nuanced conversion conversation on the day of reporting that the debt gets valued on versus kind of the longer-term, you know, debt pay down, which is not problematic given the size of our U.S. business.

Yeah, another way to think about it would be to add the debt reduction in Canadian dollar terms to the FX line, sum those two, and that is in Canadian dollar terms what you would have paid down in U.S. dollar terms given the exchange. It's a different way to think about it, but it's important to understand that the native currency is U.S. dollars and it has to be converted to loonies for reporting purposes, to Canadian dollars for reporting purposes. And that's an important thing to understand. Okay, thanks. Thanks, guys.

I think part two of the question, and Chad, you may have already answered this, but have you considered or have we considered hedging the FX rate related to our debt?

Yeah, I guess short answer is we have. I think when we issue the debt, generally speaking, we think of the hedge as a natural hedge against the U.S. business. So I know, I guess, another way to think about that is if we had an entirely Canadian business, we may have considered hedging the repayment terms in Canadian dollars, you know, like some others would in kind of the Canadian industry. But again, we think about it just naturally hedged against our U.S. business. So, you know, I think we think of it as hedged already.

It's also important to understand that, you know, when the U.S. dollar strengthens, our revenues at the top line benefit, and that flows all the way through the business to our bottom line free cash flow, which also benefits as a result of a strengthening US dollar. If we talk just about CapEx or just about debt in Canadian terms, it gets distorted because of this translation. But you have to understand, top line revenues benefit from strong US dollars and that flows all the way through the business to stronger free cash flows at the bottom line.

And so the final question relates to the $1.5 billion debt target that we have laid out to achieve. And are there any opportunities through the portfolio, Eric, that could accelerate the timeline to reach that target?

Yes. Thank you, Brian. And I think this is an ongoing conversation. You might recall at the end of 2023, we sold a third of our Viking. We called that asset Foregan and Plato, and we applied those proceeds straight to our outstanding debt balance. Just a few months ago, we sold a small thermal operation in Saskatchewan called Carrobert Thermal. The proceeds from that sale also went straight to debt. That should demonstrate our willingness to continue to find opportunities within our portfolio. The thing that's challenging is you don't want to sell assets that are disproportionately beneficial to the whole in terms of their free cash generative capacity. You wouldn't want to sell more cash flow than you get in the benefit of proceeds or sell it at a, you know, too low a price. So the answer is yes, we do continue to think about it and we do continue to act on it when the opportunity presents itself. In the meantime, we will continue acting prudently within our business to generate free cash flow and allocate that free cash flow to both debt repayment and shareholder returns.

A question on the shareholder return framework for Eric. We get questions asked around. We talked about the debt repayment. I guess it's just reiterating our commitment to the existing shareholder return framework, the composition of buybacks versus the dividend. What are your thoughts on the composition of the returns?

Yeah, so the fixed base dividend is just that. It's 2.25 cents per quarter or 9 cents per share per year. and that's a fixed base dividend. Every share benefits from that quarterly. The other portion of direct shareholder returns is through our normal course issuer bid, so we continue to buy back shares, and that continues to improve the business over time. And then the other half of the free cash flow is allocated to debt repayment. I would point out that The quantum of debt we get questions on, but I think one of the things that's important to understand in our capital structure is that we are termed out to 2030 and 2032 on the notes. So this is five years on one note and seven years on another note. And when we refinanced the bonds in 2024, we took a point and a half of coupon out when we refinanced them. And our credit facility, by refinancing, we were also able to push our credit facility term period out two more years to 2028. So we have $344 million Canadian balance on our credit facility in a decent price environment that's gone in four or five quarters. And we have a credit facility with lots of capacity no outstanding balance and years of fixed term remaining before the bonds become current. And that gives us lots of opportunity to buy them in the market and manage that over time. And so it's really important to understand the quantum might seem high, but the term structure of the debt and the cost of that debt in coupon terms is pretty reasonable. It's about six, six and a half percent on an after tax basis.

Thanks, Eric. And a couple of questions up to me on just the share price performance of late. Menno alluded to it in his opening questions around WTI prices and where they're at. Just a comment, Eric, as we wrap up on the share price and your thoughts around what's going on in the macro environment.

Yeah, well, the macro environment is not good for WTI, and I think the volatility is not just in oil space. You know, OPEC's announcement recently to unwind the cuts and put that excess supply back on the market is what has pushed prices down. We will continue to monitor the situation and react prudently following the economic guidance of our assets. And, you know, we will not make non-economic investments. And so, you know, if the price environment forces us to do so, we're prepared to do so. But we did roll this budget out in its current construct with an eye towards $65 WTI, which is kind of where we were when we rolled it out and where we are today. I'm not concerned about the resiliency of the U.S. economy. I believe the U.S. economy is strong, and I believe almost everyone who's watching the fundamentals agrees. period, there'll be periods of up cycle and down cycle, and we're prepared to react properly and prudently to those down cycle environments.

All right, I think we're coming up on just over 30 minutes here, and I think at that point we'll reach the end of today's call. So I'd like to thank everyone for participating. For those who submitted questions via the webcast, if your question was not addressed, please reach out to our investor inbox, and we will be sure to respond. And with that, thank you, operator, and thanks to everyone for participating in our conference call, and have a great day.

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.