Baytex Announces 2019 Budget

Source Press Release
Company Baytex Energy Corp. 
Tags Strategy - Corporate
Date December 17, 2018

Baytex Energy Corp. ("Baytex") (TSX, NYSE:BTE) announces that its Board of Directors has approved a 2019 capital budget of $550 to $650 million, which is designed to generate average annual production of 93,000 to 97,000 boe/d.

Commenting on the announcement, Ed LaFehr, President and Chief Executive Officer, said: "As we enter 2019, our top priority is disciplined capital allocation across our strong portfolio of assets. We will focus activity on our high return, high netback light oilassets in the Viking and Eagle Ford and we will continue to prudently advance the East Duvernay Shale. Importantly, we have the operational flexibility to adjust our spending plans based on changes in the commodity price environment."   

Highlights of the 2019 Budget

  • Funding of Capital Program. We are targeting 2019 capital expenditures to approximate adjusted funds flow (assumes a WTI price of US$52/bbl).  
  • Capital Allocation. Approximately 80% of our capital development program will be directed to our high netback light oil assets in the Eagle Ford and Viking. Approximately 10% of our capitalwill be directed to the East Duvernay Shale as we build on our success in this light oil resource play. 
  • Stable Production. With a deep inventory of development projects, we target a long-term production growth rate of 5-10%. In the current commodity price environment, we believe it is prudent to deliver a cash flow budget that is designed to deliver stable production.
  • Oil Price Diversification. Over 90% of our operating netback is expected to come from our light oil assets in the Eagle Ford and Viking. Our light oil and condensate production in the Eagle Ford commands premium Louisiana Light Sweet ("LLS") based pricing. 
  • Free Cash Flow. Adjusted funds flow in excess of capital expenditures, lease payments and asset retirement obligations will be allocated to debt repayment. A US$1.00/bbl change in the price of WTI impacts our annual adjusted funds flow by approximately $30 million on an unhedged basis ($24 million on a hedged basis).

The 2019 program is approximately 45% weighted to the first half of the year and we have the operational flexibility to adjust our spending plans based on changes in commodity prices. The budget is 90% weighted to drilling and completion activities.

Based on the mid-point of our guidance range of 95,000 boe/d, approximately 62% of our production is in Canada with the remaining 38% in the Eagle Ford. Our production mix is forecast to be 83% liquids (46% light oil and condensate, 27% heavy oil and 10% natural gas liquids) and 17% natural gas, based on a 6:1 natural gas-to-oil equivalency. 

Canada

In Canada, our development activity will largely be focused on the Viking, where we expect to invest approximately 45% of our capital in this shallow, light oil resource play (approximately 36° API) where we control 460 net sections of prospective lands. Our program anticipates drilling approximately 245 net wells (85% extended reach horizontals) in 2019.

We will continue to prudently advance the evaluation of the East Duvernay Shale, an early stage, high netback light oil resource play where we have amassed over 430 sections of land. Our initial focus has been to delineate and evaluate the potential depth of this light oil resource. We now have five producing wells in the Pembina area. The two most recent wells brought on-stream in late November are currently producing in excess of 400 bbl/d of light oil per well. These new wells are consistent with the strong results achieved from our first three wells in the Pembina area. Approximately 10% of our planned capital investment in 2019 will be directed to the Pembina area where we expect to drill 6-8 net wells.   

We expect a modest heavy oil development program through the first half of 2019, with the potential to scale activity higher should crude oil prices improve. At Peace River, we will drill several stratigraphic wells as we continue to delineate our lands and expand our future drilling inventory. Our 2019 guidance assumes the curtailment of approximately 1,000 bbl/d of heavy oil for the first six months of the year.

Eagle Ford

Our Eagle Ford asset in South Texas is one of the premier oil resource plays in North America. The asset generates a strong operating netback and free cash flow and contains a significant inventory of development prospects.

Approximately 33% of our planned capital investment will be directed to the Eagle Ford where we expect to bring approximately 30 net wells on production. Development will be concentrated in the Lower Eagle Ford formation across our four areas of mutual interest. 

2019 Guidance

Exploration and development capital ($ millions)  $550 - $650 
Production (boe/d)  93,000 - 97,000 
   
Adjusted Funds Flow ($ millions) (1)  $605 
Adjusted Funds Flow per Share (2)  $1.08 
   
Operating Netback (per boe)  (1)(3)  $22.00  
   
Expenses:   
  Royalty rate (%)     20.0% 
  Operating ($/boe)  $10.75 - $11.25 
  Transportation ($/boe)  $1.25 - $1.35 
  General and administrative ($ millions)  $44 ($1.27/boe) 
  Interest ($ millions)  $112 ($3.23/boe) 
   
Leasing expenditures ($ millions)  $7 
Asset retirement obligations ($ millions)  $17 
  • Pricing assumptions: WTI - US$52/bbl; LLS - US$57/bbl; WCS differential - US$22/bbl; MSW differential - US$10/bbl, NYMEX Gas - US$3.00/mcf; AECO Gas - $1.30/mcf and Exchange Rate (CAD/USD) - 1.32.
  • Based on weighted average common shares outstanding of 562 million.
  • Includes financial derivatives gains (losses).

2019 Adjusted Funds Flow Sensitivities

  Excluding 

Hedges

($ millions) 
Including 

Hedges 

($ millions) 
Change of US$1.00/bbl WTI crude oil  $30.1  $24.2 
Change of US$1.00/bbl WCS heavy oil differential  $8.3  $8.3 
Change of US$1.00/bbl MSW light oil differential  $9.8  $9.8 
Change of US$0.25/mcf NYMEX natural gas  $9.3  $7.4 
Change of $0.01 in the C$/US$ exchange rate  $8.1  $8.1 

2019 Capital Budget and Wells On-Stream by Operating Area

Operating Area  Amount (1)

($ millions) 
Wells On-stream

(net) 
Canada  $400  300 
United States (2)  $200  30 
Total  $600  330 
  • Reflects mid-point of capital budget guidance range.
  • Based on a Canadian-U.S. exchange rate of 1.32 CAD/USD.

2019 Capital Budget Breakdown

Classification  Amount (1)

($ millions) 
   
Drilling, completion and equipping  $545 
Facilities  $45 
Land and seismic  $10 
Total  $  600 
  • Reflects mid-point of capital budget guidance range.

Risk Management

As part of our normal operations, we are exposed to movements in commodity prices. In an effort to manage these exposures, we utilize various financial derivative contracts, crude-by-rail and capitalallocation optimization to reduce the volatility in our adjusted funds flow.

For 2019, we have entered into hedges on approximately 30% of our net crude oil exposure. This includes 25% of our net WTI exposure with 2% fixed at US$62.85/bbl and 23% hedged utilizing a 3-way option structure that provides a US$10/bbl premium to WTI when WTI is at or below US$56.02/bbl and allows upside participation to US$73.65/bbl. In addition, we have entered into a Brent-based 3-way option structure for 3,000 bbl/d that provides a US$10/bbl premium to Brent when Brent is at or below US$59.50/bbl and allows upside participation to US$78.68/bbl. We have also entered into hedges on approximately 21% of our net natural gas exposure through a combination of AECO swaps at C$2.37/mcf and NYMEX swaps at US$3.09/mmbtu.

Crude-by-rail is an integral part of our egress and marketing strategy. For 2019, we expect to deliver 11,000 bbl/d (approximately 40%) of our heavy oil volumes to market by rail, up from approximately 9,000 bbl/d in 2018. Commencing January 1, 2019, approximately 70% of our crude by rail commitments are WTI based contracts with no WCS pricing exposure.  

Corporate Restructuring

After completing the merger with Raging River Exploration, we have recently streamlined our executive team with a reduction of three executive officers. In addition, we have consolidated our Peace River and Lloydminster operations into one heavy oil business unit, resulting in an approximate 10% reduction in head office staff and contractors.  

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd