Baytex Energy Corp. Q3 2025 Earnings Call - Pembina Dubernet Drives Record Production Amid Commodity Softness

Michael, Conference Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. third quarter 2025 financial and operating results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then one on your telephone keypad. You may also submit questions in writing at any time using the form in the lower section of the webcast frame. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead.

Brian Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp.: Thank you, Michael. Good morning and welcome to Baytex Energy Corp.’s third quarter 2025 earnings call. I am joined today by Eric Greager, our President and Chief Executive Officer, Chad Kalmakoff, our Chief Financial Officer, and Chad Lundberg, our Chief Operating Officer. Before we begin, please note that our discussion today contains forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information, and non-GAAP financial and capital management measures in yesterday’s press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. After our prepared remarks, we’ll open the call for questions from analysts. Webcast participants can also submit questions online. With that, let me turn the call over to Eric.

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: Thanks, Brian, and good morning, everyone. Q3 was a strong quarter for Baytex Energy Corp. We delivered record production in the Pembina Dubernet, generated robust free cash flow supported by the strength and reliability of our Canadian heavy oil and U.S. Eagleford operations, and made further progress on debt reduction. Pembina Dubernet 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 Dubernet 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 Eagleford assets continued to deliver steady volumes and strong cash flow. Heavy oil production grew 5% quarter over quarter, while volumes in Eagleford were up 3%.

Commodity prices remained soft in the third quarter, with WTI averaging approximately $65 per barrel. 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 Kalmakoff, Chief Financial Officer, Baytex Energy Corp.: 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 in 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, and 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.

Michael, Conference Operator: 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. In the Pembina Dubernet, 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 30-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 Dubernet, 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 10 years of drilling at our current pace. Eagleford 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 completion costs. We continue to see strong results from the refracts completed last quarter. Those wells are performing in line with expectations and are informing our plans for an expanded refract 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 Greager, President and Chief Executive Officer, Baytex Energy Corp.: Thanks, Chad. Our third quarter results demonstrate Baytex Energy Corp.’s ability to create value across commodity price cycles. The Pembina Dubernet 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 Eagleford assets continue to deliver reliable results in 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 Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp.: All right. Thanks, Eric. Before we open the line for questions, I want to address the recent news reporting regarding our U.S. Eagleford 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 analyst questions remain focused on our third quarter results and published guidance. Operator, we’re now ready for questions.

Analyst Moderator: We will now begin the analyst question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. 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 pick up your handset before pressing any keys. To withdraw your question, please press star then two. We’ll pause for a moment as callers join the queue. First question comes from Phillips Johnston with Capital One. Please go ahead.

Hey, thanks for the time. My 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 Greager, President and Chief Executive Officer, Baytex Energy Corp.: 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, Manville Stack development. In the Peace River Oil Sands, Pacusco area, that one’s quite a bit bigger. The Ardmore was about 4.5 net sections, and the Peace River Oil Sands, the Pacusco area, about 40.5 net sections. That’s in the heavy oil business. In Pembina Dubernet, likewise, it’s just our areas in the south in what we call Gilbey. That was an area that was prior checkerboarded.

Okay, great. Makes sense. 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. 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?

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

Sounds good. Thank you, Eric.

Thanks, Phillips.

Analyst Moderator: Your next question comes from Luke Davis with Raymond James. Please go ahead.

Good morning, guys. Doing some good work 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. If you can kind of contextualize that in the current commodity price environment versus something a little bit more favorable, call it a mid-cycle price.

Sorry, what assets did he say?

Eric Greager, President and Chief Executive Officer, Baytex Energy Corp.: Oh, okay. Yeah. Hey, Luke, it’s Eric again. Yeah, so look, I think 2026 commodity pricing is anyone’s guess, but 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 they hit rates pretty good on exploration and development.

In Dubernet, it’s just been a really strong year in terms of fracture complexity, completion uniformity, well performance on the whole. We couldn’t be more pleased with the results across our Dubernet as well. 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 and output factors. That’s the way I would characterize it.

That’s helpful. I’m wondering also if you could just dig into the Dubernet a little bit more. Well performance looks very good. I’m wondering if there’s anything that you can tweak going forward and how you’d expect some of the productivity parameters to change. You did abandon one well, so I’m wondering if you can just flesh out some of the issues you had and maybe some learnings coming out of that.

You bet, Luke. I’m going to pitch it over to Chad Lundberg here for that one.

Michael, Conference Operator: Okay, thanks. Two parts to your question. I’ll address the whole first. This was an issue that resulted from the construction of the well, really, on the upfront drilling. It’s something to do with the casing and the cement. We believe it’s an isolated incident and that we will have it resolved for our programs forward. I think that’s the key thing, we believe it’s isolated and go forward. We’ve figured it out. Your second question, just on Dubernet performance. 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. I don’t know if we’ll ever be done. These things are a continuous improvement cycle, 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.

Appreciate that. Thanks, guys.

Analyst Moderator: 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 Ector, Senior Vice President, Capital Markets and Investor Relations, Baytex Energy Corp.: 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. I think with that, we are going to wrap up today’s call. I’d like to thank everyone for joining. Thanks again for your time and have a great day.

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