Baytex Energy (BTE) Q4 Results - Feb 29

[dan_s]

Except for the big non-cash write off ("impairment") everything else beat my forecast and looks great.

2023 Highlights
> Completed the acquisition of Ranger Oil Corporation ("Ranger") on June 20, 2023.
> Reported cash flows from operating activities of $474 million ($0.57 per basic share) in Q4/2023 and $1,296 million
($1.84 per basic share) for 2023.
> Delivered adjusted funds flow of $502 million ($0.60 per basic share) in Q4/2023 and $1,594 million ($2.26 per basic
share) for 2023. < Beat my forecast of $454.3 million Adjusted Operating Cash Flow for Q4
> Generated free cash flow of $291 million ($0.35 per basic share) in Q4/2023 and $544 million ($0.77 per basic share)
for 2023.
> Increased direct shareholder returns to 50% of free cash flow and returned $260 million to shareholders. Repurchased
40.5 million common shares for $222 million, representing 4.7% of our shares outstanding, and declared two quarterly
dividends of $0.0225 per share, totaling $38 million in 2023.
> Increased production per basic share by 16% in 2023, compared to 2022. Production for the full-year 2023 averaged
122,154 boe/d (85% oil and NGL), compared to 83,519 boe/d in 2022 (84% oil and NGL).
> Production in Q4/2023 averaged 160,373 boe/d (83% oil and NGL), exceeding guidance of 158,000 to 160,000 boe/d,
and up 6% from Q3/2023 on exploration and development expenditures of $199 million, 10% below guidance. < Q4 production beat my forecast, but it was more "gassy" than I expected.
> Divested of our Viking assets at Forgan and Plato in southwest Saskatchewan (production of approximately 4,000 boe/d)
for proceeds of $160 million, including closing adjustments.
> Improved our cash cost structure (operating, transportation, and general & administrative expenses) inQ4/2023 by 12%
on a boe basis, as compared to Q4/2022.
> Maintained balance sheet strength with a total debt to EBITDA ratio of 1.1x. During the fourth quarter we reduced our
net debt by 10% ($290 million).
> Reduced our GHG emissions intensity in 2023 by 9% from 2022 levels and achieved our 65% reduction target, relative to
our 2018 baseline, two years early.
> Proved developed producing reserves increased by 49%, from 124 MMboe to 185 MMboe
> Proved reserves increased by 55%, from 264 MMboe to 410 MMboe
> Proved plus probable reserves increased by 51%, from 438 MMboe to 663 MMboe
> At year-end 2023, the present value of our 2P reserves, discounted at 10% before tax, is estimated to be $7.8 billion < over $9.00Cdn per share ($5.9 billion at year-end 2022).

Everything looked great until this last paragraph:
We recorded a non-cash impairment of $834 million on our legacy non-operated Eagle Ford and retained Viking assets as the
carrying value of our oil and gas properties exceeded their recoverable amounts. This resulted in a net loss of $626 million
($0.75 per basic share) inQ4/2023 and $233 million ($0.33 per basic share) in 2023.

MY TAKE: These big non-cash impairment losses look bad, but it is just like taking a lot of DD&A expense at once. My valuations are based on operating cash flow per share, free cash flow, high-quality "Running Room" and the ability to pay dividends and fund stock buybacks. BTE has the "Good Stuff".

[dan_s]

I will spend more time on Baytex tomorrow morning.
I did check TipRanks and see that 5 respected analysts have updated their price targets since Baytex released Q4 results. Four of the five rate it a BUY. The five price targets range from $4.45US to $5.19US.

BTE is currently trading at $3.20US. It uses the Successful Efforts method of accounting which requires them to mark-to-market all significant assets; more conservative than the Full Cost method.

[ChuckGeb]

Non cash impairment charge of $834 million. Paid down debt by $290 million. Still have $544 of debt to pay off, maybe have paid off by third quarter.

[dan_s]

Adjusted Operating Cash Flow of $459,481,000Cdn and Free Cash Flow from operations of $290,785,000Cdn beat my forecast.

The big non-cash impairment charge is a MTM adjustment to the book value of assets acquired years ago.

[Fraser921]

>” impairment is is just like taking a lot of DD&A expense at once just like taking a lot of DD&A expense at once

Hmmm , they had to spend cash of 900 m first, right??

Your multiples on ebitda never picks up these outflows

That’s like saying except for my porfolio impairments , I made money.

[aja57]

Maybe that 'dirty laundry' on the books is why it was getting pounded. At WTI of 80 with TMX in the headlights, so long as there is no more house cleaning necessary BTE should have nice run.

[Fraser921]

Someone on Twitter states that Baytex has a history of impairments charges.

[dan_s]

Because this is a cyclical business, a lot of upstream companies have a history of making impairment charges. Impairment is a non-cash charge. The investments were made many years ago.

The problem with making Mark-to-Market write downs like this is that they only go in one direction. Baytex's assets acquired from Ranger Oil are probably worth much more than what the current book value is.
SEC accounting rules for upstream companies make the balance sheet close to a worthless financial statement.