CALGARY, Alberta, Dec. 04, 2019 (GLOBE NEWSWIRE) — Baytex Energy Corp. (“Baytex”) (TSX, NYSE: BTE) announces that its Board of Directors has approved a 2020 capital budget of $500 to $575 million, which is designed to generate average annual production of 93,000 to 97,000 boe/d. The Board of Directors is also pleased to announce the appointment of Mark Bly as Chairman.
Commenting on the budget announcement, Ed LaFehr, President and Chief Executive Officer, said: “We continue to deliver on our 2019 plan with projected free cash flow of $300 million. As in 2019, our capital program for 2020 is designed to deliver stable production, maximize free cash flow and further strengthen our balance sheet. We will remain disciplined with capital allocation, focusing on our high netback light oil assets in the Viking and Eagle Ford and our capital efficient heavy oil assets.”
Highlights of the 2020 Budget
- Funding of Capital Program. Capital program fully funded from adjusted funds flow at a WTI price of US$50/bbl.
- Sustaining Capital. Capital program includes $520 million directed to sustaining and maintenance capital, with an additional $20 million invested in our gas conservation and emission reduction initiatives.
- Free Cash Flow. Through the first nine months of 2019, net debt has been reduced by $294 million. Based on the forward strip(1), we expect to generate in excess of $100 million of free cash flow during 2020, which will support our de-leveraging strategy.
- Capital Efficiency. Our capital program is expected to generate strong capital efficiencies of approximately $17,000 per boe/d across the portfolio.
- Capital Allocation. Approximately 80% of our capital program will be directed to our high netback light oil assets in the Viking and Eagle Ford and 15% will be directed to our heavy oil assets at Peace River and Lloydminster.
- Risk Management. Approximately 40% of our net crude oil exposure has been hedged for 2020, largely utilizing a 3-way option structure that provides price protection at US$58.04/bbl with upside participation to US$63.27/bbl.
- 2020 pricing assumptions: WTI – US$55/bbl; LLS – US$58/bbl; WCS differential – US$17/bbl; MSW differential – US$6/bbl, NYMEX Gas – US$2.35/mcf; AECO Gas – $1.90/mcf and Exchange Rate (CAD/USD) – 1.33.
The 2020 program is expected to be equally weighted to the first and second 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 84% liquids (44% light oil and condensate, 30% heavy oil and 10% natural gas liquids) and 16% natural gas, based on a 6:1 natural gas-to-oil equivalency.
In Canada, our development activity is largely focused on the Viking, where we expect to invest 45% of our capital drilling approximately 220 net wells. We control 460 net sections of prospective lands in this light oil resource play. The Viking generates the highest operating netback in our portfolio and is expected to generate meaningful free cash flow.
The returns associated with our heavy oil assets are competitive with our other plays. We anticipate an active heavy oil development program that is designed to maintain production and generate free cash flow. Our 2020 program includes approximately 60 net wells at Lloydminster and 16 net wells at Peace River.
We will continue to prudently advance the East Duvernay Shale, an early stage, high operating netback light oil resource play. To-date, we have drilled seven wells at Pembina, which has confirmed the prospectivity of our 275 sections (100% working interest) of land. Approximately 5% of our planned capital investment in 2020 will be directed towards drilling 2-4 net wells to demonstrate repeatability of our well performance and cost structure.
Our Eagle Ford asset in South Texas is one of the premier oil resource plays in North America. We expect this asset to generate 37% of corporate production and substantial free cash flow. Approximately 30% of our 2020 capital program will be directed to the Eagle Ford where we expect to bring 22 net wells onstream.
The following table summarizes our 2020 annual guidance.
|Exploration and development capital ($ millions)||$500 – $575|
|Production (boe/d)||93,000 – 97,000|
|Royalty rate (%)||18.0% – 18.5%|
|Operating ($/boe)||$11.25 – $12.00|
|Transportation ($/boe)||$1.20 – $1.30|
|General and administrative ($ millions)||$45 ($1.30/boe)|
|Interest ($ millions)||$112 ($3.23/boe)|
|Leasing expenditures ($ millions)||$7|
|Asset retirement obligations ($ millions)||$19|
Our commitment remains to deliver stable production, generate free cash flow and improve our balance sheet. Our 2020 capital expenditures program is expected to be fully funded from adjusted funds flow at a WTI price of US$50/bbl. Adjusted funds flow in excess of capital expenditures, lease payments and asset retirement obligations will be allocated to debt repayment.
2020 Adjusted Funds Flow Sensitivities
|Change of US$1.00/bbl WTI crude oil||$29.1||$21.6|
|Change of US$1.00/bbl WCS heavy oil differential||$12.4||$11.2|
|Change of US$1.00/bbl MSW light oil differential||$9.4||$8.5|
|Change of US$0.25/mcf NYMEX natural gas||$8.9||$8.3|
|Change of $0.01 in the C$/US$ exchange rate||$9.9||$9.9|
2020 Capital Budget and Wells On-Stream by Operating Area
|Operating Area||Amount (1)
|United States (2)||$165||22|
(1) Reflects mid-point of capital budget guidance range.
(2) Based on a Canadian-U.S. exchange rate of 1.32 CAD/USD.
2020 Capital Budget Breakdown
|Drill, complete and equip||$470|
|Land and seismic||$5|
(1) Reflects mid-point of capital budget guidance range.
To manage commodity price movements we utilize various financial derivative contracts and crude-by-rail to reduce the volatility in our adjusted funds flow.
For 2020, we have entered into hedges on approximately 40% of our net crude oil exposure, largely utilizing a 3-way option structure that provides price protection at US$58.04/bbl with upside participation to US$63.27/bbl. The 3-way contracts are structured as follows:
|At or below US$50.40/bbl||WTI + US$7.64/bbl|
|Between US$50.40/bbl and US$58.04/bbl||US$58.04/bbl|
|Between US$58.04/bbl and US$63.27/bbl||WTI|
In addition to the 3-way options, we have WTI-based fixed price swaps on 4,000 bbl/d at US$55.90/bbl for the first quarter of 2020.
Crude-by-rail is an integral part of our egress and marketing strategy for our heavy oil production. For 2020, we are contracted to deliver approximately 8,500 bbl/d of our heavy oil volumes to market by rail.
Board of Director Chair Appointment
The Board of Directors is pleased to announce the appointment of Mark Bly as Chairman. Mr. Bly joined the board in 2017 and in March 2019 was appointed Lead Independent Director and Chair of the Human Resources and Compensation Committee. Mr. Bly led our 2019 independent director investor outreach as we engaged a substantial portion of our shareholder base with respect to our governance and sustainability practices.
Mr. Bly is an independent businessman with over 35 years of experience in the oil and gas industry, primarily with BP, a global producer of oil and gas. Mr. Bly led several key E&P units for BP in Alaska, the North Sea and in North America. After that, he was part of the E&P Executive Group, overseeing an international portfolio. He led the internal investigation of the Deepwater Horizon incident in 2010, and is the author of “Bly Report” that defined the understanding of the event by the industry and established the basis for the new organization. In his final role as Executive Vice President, Safety and Operations Risk, he led the transformational program to drive operational excellence and risk management across all of BP’s global activities. He currently serves as an independent director of Vista Oil & Gas. Mr. Bly holds a Master of Science degree in structural engineering from the University of California, Berkeley and a Bachelor of Science degree in civil engineering from the University of California, Davis.
Neil Roszell has stepped down from the board of directors to pursue other business opportunities. Baytex would like to thank Mr. Roszell for his leadership and guidance over the past year and in assisting with the seamless integration of Baytex and Raging River.