Baytex Energy (BTE) Q3 Results - Nov 7

[dan_s]

Baytex Energy (BTE) is being added to our Sweet 16 Growth Portfolio. It is replacing Earthstone Energy, which merged into Permian Resources (PR) on November 1. The Baytex CEO is speaking at our Houston luncheon tomorrow. We still have three seats available.
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Baytex Energy Corp. (TSX: BTE) (NYSE: BTE) ("Baytex") reports its operating and financial results for the three and nine months ended September 30, 2023 (all amounts are in Canadian dollars unless otherwise noted).

"Our third quarter results represent the first full quarter of combined operations following the Ranger acquisition and demonstrate the strength of our diversified North American oil-weighted portfolio. The integration has progressed extremely well and we have delivered strong results from Western Canada and the Eagle Ford in Texas. We are building momentum with current production exceeding 155,000 boe/d (84% oil and NGLs). Currently, we expect to generate free cash flow of approximately $400 million in Q4/2023 and $650 million for this year ($0.76Cdn FCF per share). As a result of this strong free cash flow, we have increased the pace of our share buyback program during the fourth quarter. We are also excited to announce two new land extensions at Peavine and Cold Lake as we continue to leverage our heavy oil expertise and recent exploration successes," commented Eric T. Greager, President and Chief Executive Officer.

Highlights

Generated production of 150,600 boe/d (85% oil and NGLs) in Q3/2023. < Compares to my forecast of 153,000 Boepd, but higher oil production resulted in higher operating cash flow than my forecast.

Reported cash flows from operating activities of $444 million ($0.52 per basic share) in Q3/2023.

Delivered adjusted funds flow of $582 million ($0.68 per basic share) in Q3/2023. < Compares to my forecast of $527.9 operating cash flow.

Generated free cash flow of $158 million ($0.19 per basic share) in Q3/2023.

Exploration and development expenditures totaled $409 million in Q3/2023, consistent with our full-year plan.

Repurchased 16.8 million common shares in Q3/2023, representing 2.0% of our shares outstanding, at an average price of $5.29 per share. < Improves per share results in future periods.

Paid a quarterly cash dividend of $0.0225 per share ($0.09 per share annualized) on October 2, 2023.

Brought 13 operated Eagle Ford wells onstream in Q3/2023, of which seven wells from three pads generated average 30-day initial production rates of approximately 2,000 boe/d (65% oil and NGLs) per well. < VERY GOOD WELLS.

Executed a two-rig drilling program at Peavine and brought 14 Clearwater wells onstream. Production at Peavine averaged 13,821 bbl/d in Q3/2023, up 69% from Q3/2022. Production during September averaged 16,400 bbl/d.

Continued commercialization program in our Pembina Duvernay with six-well program delivering strong results.

Expanded our heavy oil development fairway through two land extensions, including a 10-section agreement with the Peavine Métis settlement adjacent to our existing 80 section land position and a farm-in on 17.75 sections of land prospective for Mannville development near Cold Lake in northeast Alberta.

Quarterly Dividend

The Board of Directors declared a quarterly cash dividend of $0.0225 per share to be paid on January 2, 2024 for shareholders of record on December 15, 2023.

2023 Outlook < Full year production forecast is now higher than my forecast.

We continue to execute our 2023 plan and anticipate full-year 2023 production of 121,500 to 122,000 boe/d (previous guidance range of 120,500 to 122,500 boe/d). Production during the fourth quarter is expected to average 158,000 to 160,000 boe/d, 84% weighted to oil and NGLs (47% light oil, 24% heavy oil and 13% NGLs) and 16% natural gas. We anticipate full-year 2023 exploration and development expenditures of approximately $1,035 million, consistent with our previous guidance range of $1,005 to $1,045 million. Based on the forward strip for the balance of 2023(1), we expect to generate free cash flow of approximately $400 million ($0.48 per basic share) in Q4/2023 and $650 million ($0.92 per basic share) for the full-year 2023.

[dan_s]

We had ~40 attendees for the Baytex Energy luncheon at Massiano's on November 8th. Great food today!
The CEO gave a good presentation, and I got some information that helped me with my forecast model.

The Company's aggressive stock buyback program and continuing debt repayments helps increase my valuation to $9.25Cdn / $6.80US per share. < My valuation is just 4X annualized operating cash flow per share. Operating CFPS has a shot at going to $3.00Cdn in 2024. TipRanks' current CFPS forecast is $2.92Cdn for 2024.

BTE closed today at $3.84US.

Their acquisition of Ranger Oil is a perfect fit for this company.
> They are going to report a nice increase in production from 150,601 Boepd in Q3 to ~159,000 Boepd in Q4.
> I expect the Company's year-end report to show a PV10 Net Asset Value of just their proved reserves (P1) that is close to double the current share price.
> They plan on making some bolt-on acquisitions in South Texas to fill gaps in their leasehold in the Eagle Ford. Texas will be the source of a much higher percentage of their revenue than I thought.
> Per the CEO, they expect to generate well over $1 billion of free cash flow in 2024. 50% of FCF will be paid out as dividends and stock buybacks.
> Rising production per share and declining debt per share is a recipe for higher share price. I expect BTE to be a big winner for the Sweet 16 portfolio in 2024.

We will be publishing an updated profile on BTE later this month and they will be hosting a webinar for us in mid-December to go over their capital program for 2024.

[Cliff_N]

Dan, could you please point me to the EPS for BTE? I looked through the document and could not locate the data. Yahoo Finance has the consensus at .15 cents a share. Finding this data is sometimes more difficult than getting into Indiana Jones Temple of Doom.

Thanks!

[dan_s]

Go to the EPG website and click on the Small-Cap tab. Find my updated forecast model for Baytex and look at column O. Those numbers are taken directly from the published financial statements.

Reported Net Income for Q3 is $127,430,000, which is $0.15/share. Keep in mind that "Reported Net Income" includes at $30.7 million non-cash loss on their hedges so Adjusted Net Income is that much higher.

If you want to see the actual Income Statement for Q3 go to https://www.baytexenergy.com/investors/reports-filings/ and click on the pdf for Q3. The Q3 Income Statement is on page 40 of the official document filed in Canada. Canada's reporting requirements are a bit "strange". Instead of putting actual financial statements at the top of the quarterly reports they put them way at the end.
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The more important numbers for BTE is operating cash flow per share. Adjusted Operating Cash Flow for Q3 was $570.1Cdn million ($0.67/share). That is FANTASTIC for a stock that is trading for $5.53Cdn. Baytex is on-track to generate $1.90 CFPS this year. There is NOTHING that justifies this stock trading for less than 3X operating CFPS.