Baytex (BTE) Q3 2025 Earnings Call Transcript

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DATE

Friday, October 31, 2025 at 11 a.m. ET

CALL PARTICIPANTS

President & Chief Executive Officer — Eric Thomas Greager

Chief Financial Officer — Chad L. Kalmakoff

Chief Operating & Sustainability Officer — Chad E. Lundberg

Vice President, Capital Markets & Public Affairs — Brian G. Ector

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TAKEAWAYS

Pembina Duvernay Production -- Averaged 10,200 BOE per day, up 53% sequentially from Q2 2025, with two wells delivering thirty-day peak rates of 1,300 BOE per day per well; one additional well was abandoned due to casing issues.

Heavy Oil Production -- Increased 5% sequentially from Q2, reaching 47,300 BOE per day, supported by 20 net wells brought on stream and expansion of the Peace River and Northeast Alberta core land base.

Eagle Ford Production -- Production remains steady at 82,800 BOE per day, with oil volumes up 3% sequentially and achieving a 12% improvement in drilling and completion costs.

Total Production -- Reached an average of 151,000 BOE per day, with liquids comprising 86% of the product mix.

Free Cash Flow -- Generated $143 million in free cash flow after $270 million in exploration and development expenditures.

Net Debt -- Reduced by $50 million during the quarter, finishing at $2.2 billion at quarter end, with $1.3 billion in available credit and initial note maturity in April 2030.

Shareholder Returns -- Returned $17 million via quarterly dividend payment.

Duvernay Asset Development -- Management reaffirms a target of 18-20 wells per year by 2027 and a long-term production goal of 20,000 BOE per day by 2029.

Capital Expenditure -- Invested $270 million in exploration and development, bringing 69 wells on stream.

2025 Free Cash Flow Guidance -- Free cash flow guidance for 2025 lowered to approximately $300 million, down from prior guidance of $400 million, citing weaker commodity prices as the driver.

Heavy Oil Inventory -- Increased to approximately 1,100 locations, supporting approximately ten years of drilling at the current pace.

Acquisitions -- Executed $24 million in undeveloped land acquisitions across Peace River Oil Sands (40.5 net sections), Ardmore area (4.5 net sections), and southern Pembina Duvernay, with no immediate associated production.

Eagle Ford Refrac Program -- Recent refracs are performing as expected and underpin plans for expansion in 2026.

Dividend Policy and Capital Allocation -- Company reiterates its current policy of allocating all free cash flow to debt repayment after dividend funding.

SUMMARY

Management noted commodity prices remained soft, with WTI averaging $65 per barrel during the quarter, directly affecting forecasted free cash flow. Company leadership underscored ongoing capital discipline and reiterated there is no change to production guidance or year-end net debt targets. The operational focus was extended by recent midstream infrastructure commissioning and a land swap to consolidate Duvernay acreage. Absence of comment on U.S. Eagle Ford asset speculation was deliberate, as management stated its focus remains on execution and maximizing value.

Management stated, "We believe [the casing issue] is an isolated incident," with additional improvements planned for future Duvernay well completion programs.

Duvernay wells showed year-over-year improvement in initial production rates. Management expressed confidence in potential increases to estimated ultimate recoveries (EURs).

Leadership described the heavy oil platform as being supported by conservative guidance alongside measured capital allocation, with recent production outperformance relative to earlier communication.

INDUSTRY GLOSSARY

BOE: Barrels of oil equivalent; measurement standard converting oil, gas, and NGL volumes to a common unit based on energy content.

Refrac: The process of re-fracturing an existing well to improve production rates and overall recovery.

EUR: Estimated Ultimate Recovery; the expected total quantity of oil or gas to be recovered from a well or field over its productive life.

Pad: A cluster of multiple wells drilled from a single surface location, allowing operational efficiencies and reduced environmental footprint.

Net Sections: A land measurement indicating the company's proportionate interest in a standard square-mile section (640 acres) of mineral rights.

Full Conference Call Transcript

Eric Thomas Greager: Thanks, Brian, and good morning, everyone. Q3 was a strong quarter for Baytex. We delivered record production in the Pembina Duvernay, generated robust free cash flow supported by the strength and reliability of our Canadian heavy oil and U.S. Eagle Ford operations, and made further progress on debt reduction. Gemina Duvernay set a new quarterly production record averaging just over 10,000 BOE per day driven by strong well performance from the third pad we brought on stream in September. We also completed a land swap to consolidate our Southern Duvernay acreage and commissioned new gathering and midstream infrastructure with Gibson Energy, both of which will support more efficient development as we scale up.

Our heavy oil and Eagle Ford assets continued to deliver steady volumes and strong cash flow. Heavy oil production grew 5% quarter over quarter while volumes in the Eagle Ford were up 3%. Commodity prices remained soft in the third quarter with WTI averaging approximately $65 per barrel. But our strong operational execution and cost discipline enabled us to generate $143 million in free cash flow and reduce net debt to $2.2 billion. With that, I'll turn the call over to Chad Kalmakoff to discuss our financial results.

Chad L. Kalmakoff: Thanks, Eric. Third quarter financial results were solid. Adjusted funds flow was $422 million or $0.55 per basic share. Net income for the quarter was $32 million and we generated $143 million in free cash flow after $270 million exploration and development expenditures. We returned $17 million to shareholders through our quarterly dividend and reduced net debt by $50 million, bringing net debt at quarter end to $2.2 billion as Eric noted. Our financial position remains strong. We have significant financial liquidity with over $1.3 billion in undrawn credit capacity on our credit facilities and our first note not maturing until April 2030. Our capital allocation framework remains unchanged.

100% of our free cash flow is directed to debt repayment after funding our dividend. Based on year-to-date results and the forward strip for Q4, we now expect to generate approximately $300 million in free cash flow for 2025. This compares to our previous forecast of $400 million, with a change largely attributed to lower commodity prices during the second half of the year. There is no change to our production guidance; we expect to reach $2.1 billion of net debt at year-end. I'll pass it on to Chad Lundberg to provide more details on our operating results.

Chad E. Lundberg: Thanks, Chad. We saw strong operating performance in Q3. Production averaged 151,000 BOE per day with liquids making up 86% of the mix. We invested $270 million in exploration and development and brought 69 wells on stream, keeping us on track with our plan. The Pembina Duvernay production averaged 10,200 BOE per day, up 53% from last quarter. The third pad from our 2025 program came online in September with two wells delivering strong thirty-day peak rates averaging 1,300 BOE per day per well. The third well encountered casing issues during completion and was subsequently abandoned.

We are committed to accelerating full commercialization of the asset, targeting 18 to 20 wells per year by 2027 and ramping production to 20,000 BOE per day by 2029. In addition to our progress in the Duvernay, we continued to expand our heavy oil platform. Heavy oil averaged 47,300 BOE per day, up 5% from Q2. We brought 20 net wells on stream and expanded our core land base in Peace River and Northeast Alberta. Our heavy oil inventory now totals approximately 1,100 locations, supporting approximately ten years of drilling at our current pace. Eagle Ford production remains steady at 82,800 BOE per day with oil production up 3% from last quarter.

We brought 15.6 wells on stream while achieving a 12% improvement in drilling and completions costs. We continue to see strong results from the refracs completed last quarter. Those wells are performing in line with expectations and are informing our plans for an expanded refrac program in 2026. Overall, operational execution across the asset base remains strong, underpinned by our commitment to the health and safety of our workers and the communities in which we operate. Let me turn the call back to Eric for his closing remarks.

Eric Thomas Greager: Thanks, Chad. Our third quarter results demonstrate Baytex's ability to create value across commodity price cycles. The Pembina Duvernay continues to drive our Canadian growth potential, bolstered by recent consolidation efforts and infrastructure advancements that support future development and operational flexibility. At the same time, our heavy oil and Eagle Ford assets continued to deliver reliable results and cash flow. Our capital discipline and our consistent performance demonstrate our ability to execute through market volatility, maintain financial flexibility, and position our company for long-term value creation. Brian, back to you.

Brian G. Ector: Great. Thanks, Eric. Before we open the line for questions, I want to address the recent news reporting regarding our U.S. Eagle Ford assets. As a matter of policy, we do not comment on speculation. Our focus remains on consistent operational execution, capital discipline, and maximizing value. We ask that analysts' questions remain focused on our third quarter results and published guidance. Operator, we are now ready for questions.

Operator: We will now begin the analyst question and answer session. To submit your question in writing, please use the form in the lower right section of the webcast frame. If you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Phillips Johnston with Capital One. Please go ahead.

Phillips Johnston: Hey, thanks for the time. First question is on the $24 million of acquisitions that you executed here in Q3. I'm guessing that was spread out across the three areas mentioned in the release. Should we assume that? I guess the question is, was there any material production that came with the transactions, or was it all undeveloped acreage?

Eric Thomas Greager: Hi, Phillips, it's Eric Greager here. Thanks for the question. It was all undeveloped land, focused in the Ardmore area, that's Cold Lake Oil Sands, Mandeville STACK development. In the Peace River Oil Sands, Patisco area, that one is quite a bit bigger. So the Ardmore was about 4.5 net sections and the Peace River Oil Sands, Pokisco area, about 40.5 net sections. That's in the heavy oil business. And then in Spartan likewise focus just sorry, in Pembina Duvernay likewise, it's just our areas in the South in what we call Gilby. And that was an area that was prior checkerboarded.

Phillips Johnston: Okay, great. Makes sense. And as you mentioned, we saw a nice uptick in your heavy oil production. It was up 7% in Q2 and then up another 5% or so here in Q3. And that was after three sequential quarterly declines. Can you talk about what's driven that growth and what we should expect for Q4 and into 2026?

Eric Thomas Greager: Yes, it's a little early for 2026, but what I would say is we continue to execute the 2025 plan. It's really been buffer the change we made in May after in April, May after Liberation Day after our Q1 announcement. It's really been executing our plan. So we lay out our capital profile based on breakup anticipation of some breakup impacts to access and breakup is light, then that creates optionality in the plan. But we're really simply executing the plan and we're seeing stronger performance across all of the assets really based on capital investments we're making.

So it's really steady execution of the plan, Phillips, with a little bit better performance than maybe we had originally communicated to the market, which is pretty consistent with our conservative guidance style.

Phillips Johnston: Sounds good. Thank you, Aaron.

Eric Thomas Greager: Thanks, Phillips.

Operator: And your next question comes from Luke Davis with Raymond James. Please go ahead.

Luke Davis: Good morning, guys. Some good working in Canada. I'm wondering if you could just provide some parameters sort of by asset in terms of what you expect those to look like, say, over the next three to five years? You kind of contextualize that in the current commodity price environment versus something a little bit more favorable, call it, mid-cycle price?

Eric Thomas Greager: Sorry, what assets did you say? Oh, okay. Yes. Hey, Luke, it's Eric again. Yeah, so look, I think but 2026 commodity pricing is anyone's guess. If things go into the 50s, we're probably looking at a plan that is more conservative. That is what you would expect, and I think what any producer of a commodity would do, something that's probably closer to flat. If prices move higher toward mid-cycle through 2026 and into 2027, then naturally we would lean in because there's a lot of value to pull forward for shareholders. I'm sure that's what you would expect me to say. The assets are just performing really well.

I mean, we've got strong geology teams working all across our heavy oil fairway. The engineering teams in our long history across our large heavy oil fairway means the hit rate is pretty good on exploration and development. And in Duvernay, it's just been a really strong year in terms of fracture complexity, completion uniformity, well performance on the whole, and we couldn't be more pleased with the results across our Duvernay as well. So across the Canadian portfolio, it just feels really good. Our Viking assets run steady and flat and are extremely reliable in terms of their input-output factors. That's the way I would characterize it.

Luke Davis: That's helpful. I'm wondering also if you could just dig into Duvernay a little bit more, what looks very good. Wondering if there's anything that you can tweak going forward and how you'd expect some of the productivity parameters to change? And then you did abandon one well, so I'm wondering if you can flush out some of the issues you had and maybe some learnings coming out of that.

Eric Thomas Greager: You bet, Luke. I'm going to pitch it over to Chad Lundberg here for that one.

Chad E. Lundberg: Great. Thanks. Two parts to your question. So I'll address the whole first. This was an issue that resulted from the construction of the well really on the upfront drilling. So it's something to do with the casing and the cement. We believe it's an isolated incident and that we've we will have it resolved for our programs forward. So I think that's the key thing is we believe it's isolated and go forward. We've figured it out. Your second question just on Duvernay performance. So yes, year over year we've seen a strong improvement in IPs. As everybody knows, we're curiously declining the wells to try to understand how that relates to EURs.

We think we have a high chance of seeing an improvement in EURs as well. When you really think about how we constructed this year, we're trying to understand completion efficiency and just our ability to deliver sand and energy into the formation. We think we made big strides this year and that some of these results are a direct result of that. As we think about programs forward, we're not done. And I don't know if we will ever be done. These things are a continuous improvement site, but we do have more improvements that we're working through at this point in time that we're excited to deploy through 2026 and see where the results take us.

Luke Davis: Appreciate that. Thanks, guys.

Operator: This concludes the question and answer session from the phone lines. I'd like to turn the conference back over to Brian Ector for any questions received online.

Brian G. Ector: Thanks, Michael. We had a couple of questions come in on the webcast, but I do believe they've been addressed through the analyst Q&A already. So I think with that, we are going to wrap up today's call. I'd like to thank everyone for joining. And thanks again for your time and have a great day.

Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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