Baytex Energy Corp. ("Baytex")(TSX, NYSE: BTE) reports its operating and financial results for the three months ended March 31, 2017 (all amounts are in Canadian dollars unless otherwise noted).
“We are off to a great start in 2017 with production trending toward the high end of our guidance range. We now expect to deliver organic production growth of 5-6% this year, as compared to 3-4% previously. In the Eagle Ford, our development is shifting to the northern oil window with larger fracture stimulations and at Peace River and Lloydminster, our drilling program is generating impressive results. We are successfully integrating our Peace River acquisition, with production on these assets increasing and operating cost improvements already underway. These first quarter results demonstrate our ability to generate strong funds from operations and grow production in today’s crude oil pricing environment,” commented Ed LaFehr, President and Chief Executive Officer.
• Generated production of 69,298 boe/d (79% oil and NGL) during Q1/2017, an increase of 6% from Q4/2016;
• Delivered funds from operations ("FFO") of $81.4 million ($0.35 per basic share) in Q1/2017;
• Produced 36,081 boe/d in the Eagle Ford, an increase of 8% from Q4/2016, and 33,217 boe/d in Canada, an increase of 5% from Q4/2016;
• Realized an operating netback (sales price less royalties, operating and transportation expenses) in Q1/2017 of $19.42/boe ($19.46/boe including financial derivatives gain);
• Increased pace of development in the Eagle Ford to five drilling rigs and two completion crews with record low well costs of approximately US$4.5 million despite increasing frac stages and proppant usage during Q1/2017;
• Executed our Q1/2017 drilling program in Canada drilling 17 net heavy oil wells with strong initial results at Peace River and Lloydminster; and
• Integrated the Peace River acquisition which closed on January 20, 2017. From the time of closing, production on these assets has increased by approximately 13% as we initiated phase one of our plan to bring shut-in production back on-line.
As previously announced in December 2016, Ed LaFehr has been appointed Chief Executive Officer, succeeding James Bowzer. Mr. Bowzer, who has been in the role since September 2012, has worked with Mr. LaFehr to ensure a seamless leadership transition and will remain on the Board of Directors. Mr. LaFehr has been nominated for election as a Director at our Annual Meeting of Shareholders to be held on May 4, 2017.
Mr. LaFehr joined Baytex in July 2016 as President and has been an integral member of the executive leadership team, holding responsibility for the Canadian and U.S. business operations and corporate development. Mr. LaFehr has a long track record of success in the oil and gas industry leading organizations, growing assets and joint ventures, and driving capital and cost efficiencies.
Our operating results for the first quarter reflect an increased pace of drilling activity in the Eagle Ford that began late in Q4/2016, the resumption of drilling activity in Canada and an initial contribution from our Peace River acquisition.
Production increased 6% to average 69,298 boe/d (79% oil and NGL) in Q1/2017, as compared to 65,136 boe/d (79% oil and NGL) in Q4/2016. Capital expenditures for exploration and development activities totaled $96.6 million in Q1/2017 and included the drilling of 67 (35.5 net) wells with a 100% success rate.
Reflective of our strong first quarter operating results and planned activity level for the balance of the year, we are tightening our 2017 production guidance range to 68,000 to 70,000 boe/d (previously 66,000 to 70,000 boe/d). At the mid-point of our guidance range, this reflects an increase of 1.5%. Our expected exit production rate for 2017 now reflects an organic growth rate of approximately 5-6% over our 2016 exit production rate, as compared to our prior expectation of 3-4%. We are now forecasting full-year 2017 exploration and development capital expenditures of $325 to $350 million (previously $300 to $350 million).
Our Eagle Ford assets in South Texas provide us with exposure to one of the premier oil resource plays in North America. The assets generate the highest cash netbacks in our portfolio with an inventory of development prospects in excess of 10 years at our current pace of development. In Q1/2017, we directed 60% of our exploration and development expenditures toward these assets.
Production increased 8% during the first quarter to average 36,081 boe/d (76% liquids), as compared to 33,432 boe/d in Q4/2016. During the first quarter, we averaged 5 drilling rigs and 2 completion crews on our lands.
In Q1/2017, we participated in the drilling of 36 (8.4 net) wells and commenced production from 33 (9.4 net) wells. The wells that commenced production during the quarter have established 30-day initial production rates of approximately 1,250 boe/d. A recently completed pad within the oil window of our Longhorn acreage established 30-day initial production rates of approximately 1,450 boe/d. At quarter end, we had 44 (10.7 net) wells waiting on completion.
We continued to see record low well costs during the first quarter with wells being drilled, completed and equipped for approximately US$4.5 million, down 20% from approximately US$5.6 million in Q1/2016. These record low well costs were achieved despite increasing the number of frac stages and proppant usage. In Q1/2017, we increased the effective number of frac stages per well to 28 (from 22 in Q1/2016) and the amount of proppant per completed foot to 1,800 pounds (from 1,000 pounds in Q1/2016).
Our pace of development in the Eagle Ford is expected to remain stable throughout 2017 with 4-5 drilling rigs and 2 completion crews working on our lands. At this pace, we expect to bring approximately 34 net wells on production in 2017.
Our Peace River region, located in northwest Alberta, has been a core asset for us since we commenced operations in the area in 2004. Through our innovative multi-lateral horizontal drilling and production techniques, the area is recognized as having some of the strongest capital efficiencies in the oil and gas industry and, over the years, has contributed significantly to our growth. Production during the first quarter averaged approximately 17,000 boe/d (93% heavy oil).
In November, we announced the strategic acquisition of additional heavy oil assets in Peace River. The assets are located immediately adjacent to our existing Peace River lands and more than doubled our land base in the area. The acquisition will drive efficiencies and synergies in our operations and significantly enhances our inventory of drilling locations for future growth. In total, we now have 350 potential drilling locations on our lands representing a drilling inventory of approximately 14 years. We closed the acquisition on January 20, 2017 for total consideration of $66 million. At the time of closing, the assets were producing approximately 3,000 boe/d.
Since closing the acquisition, production has increased by approximately 13% as we initiated phase one of our plan to bring approximately 3,000 boe/d of shut-in production back on-line. During the first quarter, we restarted 29 wells at a total cost of approximately $0.5 million, which resulted in an incremental 400 boe/d of production and capital efficiencies of approximately $1,250 per boe/d. Phase two will include additional gas conservation and vapour recovery systems that are expected to be implemented over the next 6-18 months. We are also undertaking an extensive review of the operations to ensure regulatory compliance and identify opportunities to reduce operating costs. We expect to achieve a 15-20% reduction in operating costs on the acquired assets in 2017 with further improvements anticipated in 2018 and beyond.
During the first quarter, we drilled 4 (4.0 net) multi-lateral horizontal wells (average of 12 laterals per well), two of which have been producing for more than 30 days and have established 30-day initial production rates of 614 bbl/d and 489 bbl/d. The cost to drill, complete and equip a multi-lateral well at Peace River is approximately $2.5 million, representing an 11% improvement from the wells we drilled in Q3/2015.
We plan to drill a total of 11 net multi-lateral horizontal wells at Peace River in 2017.
Our Lloydminster region, which straddles the Alberta and Saskatchewan border, produced approximately 9,100 boe/d (98% heavy oil) during the first quarter, unchanged from Q4/2016. This area is characterized by multiple stacked pay formations at relatively shallow depths, which we have successfully developed through vertical and horizontal drilling, waterflood and SAGD operations.
During the first quarter, we drilled 17 (13.1 net) wells, including 12 (12.0 net) operated wells. We are now applying our multi-lateral drilling and production techniques from our Peace River region to Lloydminster, which we expect will lead to a 25% improvement in individual well capital efficiencies compared to single-lateral horizontal wells.
At Soda Lake, we drilled 8 (8.0 net) multi-lateral horizontal wells in the first quarter of 2017 (16 multi-lateral horizontal wells are planned for the full-year). Depending on the overall length and completion, well costs range from $700,000 to $900,000 with average 30-day initial production rates of 90-150 bbl/d. Through efficient operational execution and lower service costs, the cost to drill, complete and equip our first eight multi-lateral wells have come in approximately 15% below budget with 30-day initial production rates meeting expectations.
We plan to drill a total of 52 net wells at Lloydminster in 2017. At this pace of development, we have a drilling inventory of over 10 years on these lands.
We generated FFO of $81.4 million ($0.35 per share) in Q1/2017, compared to $77.2 million ($0.36 per share) in Q4/2016. The increase in FFO is largely due to higher production and commodity prices, offset by lower realized hedging gains.
Our net debt totaled $1.85 billion at March 31, 2017, as compared to $1.78 billion at December 31, 2016. The increase in net debt primarily relates to the Peace River acquisition that closed in January 2017 and was funded with a $115 million equity issue that closed in December 2016.
We continue to maintain strong financial liquidity with our US$575 million revolving credit facilities one-third drawn and our first meaningful long-term note maturity is not until 2021. With our strategy to spend within funds from operations, we expect this liquidity position to be stable going forward.
Our revolving credit facilities, which currently mature June 2019, are covenant based and do not require annual or semi-annual reviews. We are well within our financial covenants on these facilities as our Senior Secured Debt to Bank EBITDA ratio as at March 31, 2017 was 0.7:1.00, compared to a maximum permitted ratio of 5.00:1.00, and our interest coverage ratio was 4.0:1.00, compared to a minimum required ratio of 1.25:1.00.
During the first quarter, our operating netback improved as compared to Q4/2016. In Q1/2017, the price for West Texas Intermediate light oil (“WTI”) averaged US$51.91/bbl, as compared to US$49.29/bbl in Q4/2016. The discount for Canadian heavy oil, as measured by the price differential between Western Canadian Select (“WCS”) and WTI, increased slightly during Q1/2017, averaging US$14.58/bbl, as compared to US$14.32/bbl in Q4/2016.
We generated an operating netback in Q1/2017 of $19.42/boe ($19.46/boe including financial derivatives gain), as compared to $17.62/boe ($19.24/boe including financial derivatives gain) in Q4/2016 and $5.82/boe ($12.29/boe including financial derivatives gain) in Q1/2016. The Eagle Ford generated an operating netback of $26.83/boe during Q1/2017 while our Canadian operations generated an operating netback of $11.37/boe.
Our condensed consolidated interim unaudited financial statements for the three months ended March 31, 2017 and the related Management's Discussion and Analysis of the operating and financial results can be accessed immediately on our website at www.baytexenergy.com and will be available shortly through SEDAR at www.sedar.com and EDGAR at www.sec.gov/edgar.shtml.
Conference – May 5, 2017
9:00 a.m. MDT (11:00 a.m. EDT)
Baytex will host a conference call tomorrow, May 5, 2017, starting at 9:00am MDT (11:00am EDT). To participate, please dial toll free in North America 1-866-226-4099 or international 1-647-427-2258.
Alternatively, to listen to the conference call online, please enter http://edge.media-server.com/m/p/9suibzi6 in your web browser.
An archived recording of the conference call will be available approximately two hours after the event by accessing the webcast link above. The conference call will also be archived on the Baytex website at www.baytexenergy.com.
SOURCE: Baytex Energy Corp.
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